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Some data formats can embed references to content that is automatically retrieved when the data is viewed (not waiting for a user to select it). If it's possible to cause this data to be retrieved through the Internet (e.g., through the World Wide Wide), then there is a potential to use this capability to obtain information about readers without the readers' knowledge, and in some cases to force the reader to perform activities without the reader's consent. This privacy concern is sometimes called a ``web bug.''
In a web bug, a reference is intentionally inserted into a document and used by the content author to track who, where, and how often a document is read. The author can also essentially watch how a ``bugged'' document is passed from one person to another or from one organization to another.
Web bugs are used extensively today by Internet advertising companies on Web pages and in HTML-based email messages for tracking. They are typically 1-by-1 pixel in size to make them invisible on the screen to disguise the fact that they are used for tracking. However, they could be any image (using the img tag); other HTML tags that can implement web bugs, e.g., frames, form invocations, and scripts. By itself, invoking the web bug will provide the ``bugging'' site the reader IP address, the page that the reader visited, and various information about the browser; by also using cookies it's often possible to determine the specific identify of the reader. A survey about web bugs is available at http://www.securityspace.com/s_survey/data/man.200102/webbug.html.
What is more concerning is that other document formats seem to have such a capability, too. When viewing HTML from a web site with a web browser, there are other ways of getting information on who is browsing the data, but when viewing a document in another format from an email few users expect that the mere act of reading the document can be monitored. However, for many formats, reading a document can be monitored. For example, it has been recently determined that Microsoft Word can support web bugs; see the Privacy Foundation advisory for more information . As noted in their advisory, recent versions of Microsoft Excel and Microsoft Power Point can also be bugged. In some cases, cookies can be used to obtain even more information.
Web bugs are primarily an issue with the design of the file format. If your users value their privacy, you probably will want to limit the automatic downloading of included files. One exception might be when the file itself is being downloaded (say, via a web browser); downloading other files from the same location at the same time is much less likely to concern users.