There is a high competition with google's rival - Facebook.
Google knows that what people are searching but doesn't know who?
Facebook know exactly who searches like location age preferences and lots of other information, that's why google is attempting to be in every part of our lives.
No, I think you aren't completely right, when a user uses the google browser, he is often directed to signing up for a google account or logging in, and google also remembers accounts from IP addresses and saves personal information too. Facebook on the other hand is a competition when it comes to advertising, but both of them support each other indirectly due to user distribution.
Yes google stores your activities on google browser you do every day and they will try to display ads based on your interest so they can get more clicks for them and more profit also.
What you said is correct. This is how google can make so much money from the advertisers because they have so many online services like google browsers, search engine, youtube, google maps ... etc., From all these sites they will analyze the data and display relevant advertisements to people so they will expect more clicks for those advertisements.
Some how they are playing with people personal data to display these advertisements
