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We call it the VSS here, short for Vehicle Speed Sensor.
Used, as others have said above, for speedometer and odometer calculations, the "rear" component of the ABS (anti-lock brake system) calculations, and is used for calculating shift points in the automatic transmission.
My friend's Dodge had this sensor go and it caused all of the lights on his dash to light up, and he had no odometer or speedometer readings. Actually the stupid dodge's differential some how sheared the sensor up and ground it in to the rear end gears. He had to replace the rear end as well because of all the shavings in the gears. I think the total bill was like $3000 from the dealership, he was just happy it was under warranty.
It went out on a company Ford I was driving. I could still drive it, but the transmission acted really strange. I don't recall any dash lights coming on at the time.