I copied this system description from an on-line article -it's so much easier for them to explain it..
http://www.secondchancegarage.com/public/653.cfmBasically, an electric temperature gauge is a voltmeter. The scale on the gauge face is reading temperature but the instrument itself is reading voltage. The gauge itself is comprised of a bimetallic (two different metals fastened together) "hairpin" assembly. This assembly is attached to the needle.
The gauge requires an electric circuit and a sending unit in order to read temperature. The sending unit is a temperature-sensitive material that is part of a variable resistance, water-sealed unit that sits in the coolant stream in the engine. As the engine warms up the resistance in the sending unit is lowered gradually until the system reaches maximum heat. The sending unit is the "ground" portion of the circuit.
In the completed circuit the battery voltage passes from one side of the gauge, through the bimetallic spring and onward to the sending unit, which is grounded to the engine. When the engine is cold the resistance is high, so little current passes through the gauge. This small current doesn't heat up the bimetallic spring, so the gauge reads a low temperature. As the engine warms and the sending unit's resistance lowers more current passes through the gauge and the needle reads higher and higher because the bimetallic spring expands further.
Electric gauges can fail to read accurately because the sending units fatigue or rust over, or simply lose their connection to ground. The bimetallic spring can also fatigue over time, rendering the gauge inaccurate or inoperable.