First, Chrome determines the topics associated with websites. For example, a yoga website might be classified as being related to 'Fitness'. These topics are assigned to the websites themselves, not you. Then, Chrome keeps a handful of your most frequently visited topics in a given week, and participating sites show you ads based on these topics.
The calculation of the most frequent topics occurs entirely within the browser, without sharing data with external servers. The resulting topics may be sent to servers in an anonymous way for sensitivity and abuse analysis.