[GeeTwo]

Essentially, an encoder is a sensor which detects motion through digital impulses, as opposed to a potentiometer, which reports through an analog channel. The most common sensor to be called an encoder is one which uses two digital inputs and has 4, or some multiple of 4, state changes per rotation of a shaft, referred to as a quadrature encoder.

A simple quadrature encoder has one pin at "zero" when the angle is between 0 and 180, and "one" when between 180 and 360. The other has "one" when the angle is between 90 and 270, "zero" otherwise. The nifty thing about this setup is that (for motion in a constant direction), the order of ups and downs tells you which direction the rotation is going, as the rate of transitions gives you rotational speed.

If you need "absolute" position rather than speed (as you might want for a lift this year), you can either use a potentiometer type sensor, or some sort of limit switch in addition to the encoder that gives you a reference point to count transitions from.

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