Where is the space debris and how do space agencies tracks it?

The space debris is frankly everywhere. The space around the Earth however is quite big and the chances of colliding are remote. Most objects are either given a path that will lead to it's orbit decaying and falling into our atmosphere to burn up or left to do this eventually by itself.
Most of these objects are too small or too fast to track and so space agencies don't bother. Larger objects are occasionally counted, but because of their greater mass they tend to come down soonest.