Tells you the speed the bike is going, revolutions of the pedals, your heart rate, etc.

They first started off by placing a little magnet on a spoke of a tire, a sensor on the frame, and entering the diameter of the tires into the computer. Each revolution (pass of the magnet) would indicate that distance traveled in the time of the revolution, so it could tell you your current speed, average speed, and distance. New ones are much more fancy with maps, pre-planned routes, elevation, hear rate, etc.