The proximity sensor is attached to the X carriage and it works by bouncing infra-red light off the surface of the print bed. The intensity of the reflection gives the distance the surface is from the device. Over a range of a few millimetres it is accurate to approximately 10 microns. The detector will also pick up any other infra-red radiation in the environment so the device works differentially: the reading with the emitter turned off is subtracted from the reading with the emitter turned on to eliminate environmental IR interference.
For further details see the RepRapPro proximity sensor Github repository here. There are details including the PCB layout, which includes the dimensions of the device.