What is Encoder?
An encoder is a device, circuit, transducer, software program, algorithm or person that converts information from one format or code to another, for the purposes of standardization, speed, secrecy, security or compressions. A rotary encoder, also called a shaft encoder, is an electro-mechanical device that converts the angular position or motion of a shaft or axle to an analog or digital code.Encoders, at present, have been widely used for factory automations, measurements, office automation devices, medical equipment, aviation and universal fields. Various kinds of encoders from small to high absolution are available to meet all of the requirements. As a result of this, a maximum of resolution for encoder is one arc sec. High performance encoders supported by these high disk producing techniques are available.

There are two main types: absolute and incremental (relative). The output of absolute encoders indicates the current position of the shaft, making them angle transducers. The output of incremental encoders provides information about the motion of the shaft, which is typically further processed elsewhere into information such as speed, distance, and position.

Incremental ( Relative ) Encoders..
Generate pulses in a frequency proportional to the rotational speed.The encoders can be used for speed control, position control, or as a rotation indicator or a pulse generator of servo motors mounted in machine tools, robots, or measuring equipment.Optical incremental encoders are composed of rotor plate, fixed slit, light emitting diodes, photo transistors, etc. 
An "incremental" encoder accurately records changes in position, but does not power up with a fixed relation between encoder state and physical position. Devices controlled by incremental encoders may have to "go home" to a fixed reference point to initialize the position measurement. A multi-turn absolute rotary encoder includes additional code wheels and gears. A high-resolution wheel measures the fractional rotation, and lower-resolution geared code wheels record the number of whole revolutions of the shaft

Absolute Encoders..
Output the absolute value of rotation angles.The encoders are used for position control of servo motors mounted on machine tools or robots. An "absolute" encoder maintains position information when power is removed from the system. The position of the encoder is available immediately on applying power. The relationship between the encoder value and the physical position of the controlled machinery is set at assembly; the system does not need to return to a calibration point to maintain position accuracy.