While certainly simplifying matters, it means that once you are logged into your Google account on any of its services (YouTube, Gmail, Picasa etc), information will be shared to all other services and ads will be targeted across the portfolio.
Google announced this move a month ago and it lead to a number of groups calling on Google to postpone the new policy implementation until further investigation. The European Unions Article 29 data protection working group appealed to Google to stall the policy introduction until it could properly assess its impact., but were ignored.
In a post on the Official Google Blog, Alma Whitten, Google’s head of privacy, said: "Our privacy policies have always allowed us to combine information from different products with your account — effectively using your data to provide you with a better service. However, we've been restricted in our ability to combine your YouTube and Search histories with other information in your account."
Source: Official Google Blog