I have extensive notes on important aspects of my world itself, but for each session, I generally put some sparse notes--some are specific encounters, some are information the players can learn, but beyond that it's all in my head--or at least is in my head for a split second before I say it. I improvise a tremendous amount. Or since alot of people see that as profane, I "interact" with the PCs based on the framework that I've created beforehand; that's why my setting notes are extensive.
One thing I put down in great detail is the monster ecosystem for each region of the world. That way, while I may preselect some encounters, most I choose during the session based on how the session is going. So I can just refer to my list for that region and decide that--to draw an example from my last session--the magma paraelemental was cake for them as a result of the character with unstoppable grapple getting resist fire cast on him and pinning the elemental while everyone else beat on it. So for the next encounter (as they crossed into another region) I pitted them against a Phthisic (PsiH). Since none are psions, it simply stunned them. So as soon as it was grappled, it stunned the grappler, and each round stunned the person who dealt the most damage until there was one char standing and he dealt the final blow before he could be stunned.
So I like having a framework I can work within so I can interact with the players rather than following a script. But certainly no disrespect to those who work differently than I do; this is just what works for me and I have no intention of evangelising it.