Digital Position Sensors?

Hi everyone, I dont know where to put this thread but, I was wondering how the sensors on linear motors worked. I think they use hall sensors as a way to find position, but how does it happen?

Like a wheel speed sensor uses a toothed ring, with a hall sensor, but all the teeth are the same, and it just has to measure speed of rotation, not a linear position. I think my question is, if all the teeth are the same, how does the sensor differentiate between 1mm on the scale and 5mm...or .5mm, since theres no difference in the tooth size, or is there?

I guess you could just have a sensor that outputs a 1 or 0 every .5mm, then use an adder to keep track of how many spaces you moved...but I think that would lead to problems(What if it shifted, and you were off a space or two?) and I just realized that this would only work in one direction.

Do they even use metal teeth? or is it some kind of barcode with a sensor?