How does the rotary encoder work?

A rotary encoder is a type of position sensor which is used for defining the angular position of a rotating shaft. It generates an electrical signal, either equivalent or digital, according to the rotational movement. There are numerous types of rotary encoders like: absolute rotary encoder, incremental rotary encoder Light Duty Incremental Encoders and many other. These encoders are categorized by either Output Signal or Sensing Technology.