In light of recent events, I've stopped my series of password articles. Mostly because ArsTechnica posted an article more or less going through the same things I wanted to cover. You can find the article here. It goes into not only how passwords are formed, but also how to crack them.
Also, we've had the NSA spying 'scandal', which many of us have known about, or highly suspected for years. The general consensus is that what the NSA is doing isn't some magical top secret program. Its probably using off the shelf components, that anyone with enough money can buy, and using it to collect data. I doubt they are storing everything that crosses the internet. The media seems to imply that, but I doubt it.
What they are doing through is storing who connects to who. Not the data itself, but information about the data, called meta-data. We don't really care about the data itself. For example, lets say that Amy calls Bob, over a cell phone. Right way, we know several things. Amy called Bob, establishing a relationship. They used a cell phone. As we dig further, we know where Amy was when she made the phone call, and if she was moving. We know how long Amy and Bob conversed. We also know where Bob was, and if he was moving.
This is quite a bit of information that can be used to track movement, establish "social graphs", and other forms of data analysis. Even without knowing what the data is, they can infer what the may be.
There are way you can protect yourself. Things like VPNs, proxies, and Tor. By keep in mind, those types of things will slow your internet connection, turning your fast broadband connection to a very slow dialup modem. That may be the price of "freedom".