The correct answer is option 2 i.e. It is a small file that contains user browsing data.
Cookies are messages that web servers pass to your web browser when you visit web sites.
Your browser stores each message in a small file called cookie
When you request another page from the server, your browser sends the cookie back to the server.
These files typically contain information about your visit to the web page, as well as any information you've volunteered, such as your name and interests.
The term cookie is an allusion to a Unix program called Fortune cookie that produces a different message, or fortune, each time it runs.
Cookies are also used for online shopping.
Online stores often use cookies that record any personal information you enter, as well as any items in your electronic shopping cart, so that you don't need to re-enter this information each time you visit the site.
Servers can use cookies to provide personalized web pages.
When you select preferences at a site that uses this option, the server places the information in a cookie. When you return, the server uses the information in the cookie to create a customized page for you.
The website that creates a cookie can read it, so other servers do not have access to your information. Additionally, web servers can use only information that you provide or choices that you make while visiting the website as content in cookies.