it tells the ecu the phase of the engine. the crank only has 4 pins on it, spaced at 90 degrees. being a 4 stroke engine, the crank shaft makes 2 complete revolutions for every (suck, squeeze, bang, blow) cycle. that means that for example, piston no. 1, comes to the tdc position twice, but it should only spark near that position once out of every 2 times. how does the ecu know which time to spark?

the camshafts and auxilliary shaft (and hence the distributor) have pulleys twice the size of the crank pulley, and only rotate once per 2 revolutions of the crankshaft. the phase sensor basically tells the ecu when cyl 1 is at tdc so that it can time the spark and injection for it. the other 3 cylinders are then done 180 (crankshaft) degrees apart after that.

most clever ecu's like L8 only seem to need the phase sensor signal on starting and you can disconnect it after that and it'll still run fine. one of my cossies is like that. the other on a L6 seems to have cutting out problems caused by a phase sensor fault