They don't know what you watched.
They do, however, know what a representative sample watched. The sample is made up of the same demographic profile (age group, family/singles, income groups etc) as the UK as a whole, and then multiplied up by the relevant factor to give the 'viewing figures' for the population as a whole.
It was originally done by sending out questionnaires which would be filled in by just one member of the household - (my mum was asked to fill one in back in the early 80's) - though it was much easier then, as there were only three channels and most households only had one television set.
Nowadays, participating households are all wired up to a 'black box' that records exactly what is watched by every television, satellite, digital-box, VCR and PVR in the house. Each member of the household is supposed to record their presence by clicking a button whenever they enter or leave a room where a television is.
The results are sent down the phone line to the company HQ. Some 4� to 5 thousand homes are monitored in this way.
I have two friends who work for a company that does this, and supplies BARB (The Broadcasters' Audience Research Board) with their Audience Measurement data. They have some amusing anecdotes too. Like the teenage son who insists he �doesn�t need� the satellite box in his bedroom wired up, as he 'doesn�t use it�. They found out when the results were compiled that several hours of porn were being watched through that particular receiver each night !!
For a recorded programme to be counted as 'viewed' , it has to be watched within a certain period from the date of broadcast (something like three or five days - can't remember which)