There is a practice of asking freelancers to install a tracking software - taking automated screenshots or even webcam shots. I have never experienced such a client myself but I've heard it to exist from many sources. It is a red flag and you should drop the client.
Using tracking software is insulting. It is for the same reason why physical stores are full of cameras -- making sure you do not steal. In the case of software development stealing as in making sure you are not using your time for the benefits of the client.
One can argue that any version control system that is used frequently enough is also a tracking software. In this case as long as your client is not stalking your commit logs to come up with made-up excuses not to pay; and you are actually doing your work (not spending some of the client-paid time for hobby projects) that should be perfectly fine.
Which makes me think that these days tracking software should become much less relevant for honest purposes because git, hg etc distributed VCSs encourage very fast and frequent commits. At the same time clients can build much more trust with the developer without becoming a stalker.