I'm always suspicious with this kind of thing however I downloaded and installed spotify and the first thing I noticed was that it immediately searched out all music files on my PC even though I had declined. Seemed a bit like Limewire and Bearshare behaviour.

I searched for just how it works and was not suprised to find my thinking was correct. It is a Peer to Peer network, so whilst I was listening to music stored on someone elses computer, I watched as my own stored tracks were being uploaded from my internet connection to someone else.
 
I've deleted it now as my internet has a monthly data useage allowance that spotify can easily exceed.

The easiest way to explain P2P sharing  Sooliz is for you to imagine you have two computers in your house on a private network and you can access files on the second computer from your main one and vice versa.
The file you want is located on no.2's drive and travels to your screen via the wired or wireless connection.
In the case of Spotify, the computers with the program installed are a potential source of music files, so when you are switched on, it is running in the background, and even though you may not be using it, it will locate a song stored on your drive that someone has requested, upload it and deliver it to their computer using your own internet connection. That's the basic theory