In short; Instagram is now going to share your information with its parent-company Facebook in order to serve more relevant ads. Instagram will share things like the places you visit, your interests (remember all those photos you've liked?), and even your photos in order to tailor advertising to you.
You can look at this any number of ways. On the one hand, if Instagram is free and we have to see advertisements in order to use it - wouldn't it be great to see ads that you'd actually like to see rather than ads you really wouldn't be interested in? On the other hand, it sort of stinks that the photos you share, the places you visit, and the people you know all become currency for Facebook.
This change goes into affect on January 16, 2013. The only way to opt-out of these changes is to literally delete your account.
Just when Instagram really started to become great, they go and make us think they are creepy.