The IAT or MAT sensor (as equipped), is a thermistor (resistor which changes value based on temperature) mounted either in the air intake snorkel or the manifold (depending on the application). Low intake air temperatures produce a high resistance - 100,000 ohms at -40°F (-40°C), while high temperatures cause low resistance - 70 ohms at 266°F (130°C).
The control module provides a 5 volt reference signal to the sensor through a resistor in the module and measures the voltage. The voltage will be high when the air is cold and low when the air is hot. By measuring the voltage, the control module knows the intake/manifold air temperature.
The air temperature signal is used by the control module to delay EGR until the temperature reaches approximately 40°F (5°C). The control module also uses the signal to retard ignition timing during high air temperatures.
Removal and installation of the air temperature sensor is covered in Engine & Engine Overhaul of this guide. Please refer there for further information.