They know that every person who clicks on their add is within the demographic profile they targeted. They do, indirectly, buy that information - and there's no way to operate Google's business model without that remaining true.

Google does help them (google's advertisers) to track you indirectly. Not throught the adwords networks but throught the RTB network (DoubleClick).

You can easily validate this by checking all the "pixels" (in the RTB sense) that are being deployed by Google. In their defense, they do mask a lot of things so stuff like the full IP address are not available (last time I worked on that they just give you the three first segments) but still quite a few information was available to target your demographic segment.

Edit:

For downvoters and people curious about tracking pixels: - https://support.google.com/dfp_premium/answer/1347585?hl=en - https://support.google.com/dfp_premium/answer/2508388?hl=en

Tracking pixels are pretty standard for the web analytics industry, and are a tool to aggregate information, not sell. Google, Facebook, Optimizely, Marketo, etc. all use them.

If you really want to learn more, you can read the wikipedia page on it: http://en.wikipedia.org/wiki/tracking_pixel