This is achieved by a small cookie that is placed on a person's computer. Which in turn collects data and sends it back to Google.
Google has this to say about the new Add-on.
"To provide website visitors with more choice about how their data is collected by Google Analytics, we have developed the Google Analytics Opt-out Browser Add-on. The add-on communicates with the Google Analytics JavaScript (ga.js) to indicate that information about the website visit should not be sent to Google Analytics.
If you want to opt out, download and install the add-on for your current web browser. The Google Analytics Opt-out Browser Add-on is available for Internet Explorer (versions 7 and 8), Google Chrome (4.x and higher), and Mozilla Firefox (3.5 and higher).
So if you would like to opt out of this and not have websites getting your information you would need to install this add-on. What it does is that it will interact with the cookies and tell them not to send back your information.
All this added privacy comes in the middle of the battle Google is having with US and European regulators. Who are increasingly worried with the power and presence of Google on the web
To Install the new Google Opt-out Browser add-on please click here. To read more please visit the Google Analytics Blog.