The position sensors work as a pulse generator, basically as a tooth passes it it generates a small pulse signal. They count the number of pulses and their peak strength to determine engine position, and have a check position. The check position is usually a missing tooth, this confirms the engine position by missing a pulse when it should generate one. This missing pulse is detected by the ECU and it confirms where on the engine rotation it actually is.

Sensors can be located anywhere where there is a mechanical commection to the engine position, and a sprocket can be fitted. It could be the cam belt or cam chain drive, camshaft, or the crankshaft and any of its fixed attachments. As long as it is directly connected mechanically to the crankshaft it can be used to time the engine position.