Incremental optical encoders are slotted discs that interrupt the light beam between the photoemitter-detector pair on an alternate basis thereby creating pulses of light. The pulses are then counted to provide a position. There are some incremental optical encoder modules that provide a marker pulse once per revolution which can be used to mark a Zero reference point. A secondary LED photoemitter-detector pair will provide the direction of rotation while shaft speed is indicated by the pulse rate. The most commonly known pulse configuration is quadrature encoder which generates two square wave pulses 90 degrees apart.

Absolute optical encoders provide and record the unique values of each shaft position. This is especially important in the event of a power failure after which time machine operation will continue from the point where it stopped. Gray and binary codes are the most common types of numerical encoding used in absolute optical encoders.

Digital optical encoders have both linear and rotary configurations, but the most common type is rotary (both incremental optical encoders and absolute optical encoders are rotary configurations). Most rotary encoders are made of glass or plastic with photographically etched tracks similar to those on a compact disc. In servomotor applications, encoders act as a feedback device that ensures proper equipment operation. The incremental rotary encoder is the most commonly used due to its low cost and ability to provide signals that can be easily interpreted by a microprocessor or microcontroller to provide motion related information. However, incremental rotary encoders are more susceptible to electrical noise. Although absolute optical encoders cost more, the start-from-the-stopping-point feature in the event of a power outage may be worth the added expense depending upon the application.