Microsoft assigns a unique advertising ID to every account on each device. This ID enables apps to identify you (although not necessarily track you across devices) and also allows companies to build a personalized profile on you. This profile is typically used to present targeted ads or even capture/sell your demographic data.
From Microsoft’s developer information, the advertising ID is “used to provide more relevant advertising by understanding which apps are used by the user and how they are used, and to improve quality of service by determining the frequency and effectiveness of ads and to detect fraud and security issues."
Sound a little creepy? Fortunately, you have the option of stopping this behavior. Although you can’t actually disable the advertising ID, per se, you can stop apps from using this ID to identify you. What’s more, when you disable the usage of your advertising ID, Microsoft also resets it, which means your account receives a new ID. If you later turn ID sharing back on, this reset theoretically severs the connection between data collected before and after the reset.
One other setting might cause concern when using apps and that is the usage of your name, picture and account information. This indeed allows apps to identify you, but unlike the advertising ID, this may be required for apps to work as intended. This setting is not used for ad tracking. Therefore, you might choose to keep this enabled or selectively enable usage per app.