Definitions
An absolute position sensor outputs the actual position being measured by the sensor within its measurement range. This type of sensor needs no reference information to determine position.

An incremental-type position sensor outputs a change in position with respect to a reference point. It counts cycles and determines position with respect to a reference as opposed to the start or end of a fixed range. This is referred to as incremental position change. Often these are incremental encoders.

Here's why this matters.

Practical Technical Differences
Absolute position sensors output the sensor's position upon being powered. If power is lost, it still reports the correct position when power is reapplied.

Incremental sensors do not retain their position if power is lost, they must reacquire reference information. Until a reference is acquired, there is uncertainty of position information when the incremental-type sensor is powering up or as a power loss is starting to occur and insufficient power is available. When power is restored, only a relative position is known, not an absolute position.

Some incremental-type sensors have batteries to try to overcome this deficiency of missing position information during a power loss. While it is better, batteries eventually lose power and can provide less than the needed amount of power for memory circuits to retain information even before they are at zero output. So if the battery is low or out of power, you're back to an information loss scenario. This could be a serious situation for reliability, quality and even safety depending on the application.

Absolute sensors can provide information as fast as real time with no latency right from being powered up (potentiometric sensor types). Incremental-type sensors need up to one cycle to determine the reference information and possibly perform a calibration process to get it.

Incremental sensors that use optical technology have, in the past, had an advantage of no mechanical wear over potentiometer (track and wiper) technology found on absolute position sensors that use potentiometric technology. This advantage is erased though as newer non-contacting and touchless absolute position sensor technology is available. Optical sensors can be more sensitive to disturbances in the application's environment such as vibration, shock as well as dust or liquid ingress.

Practical Cost Differences
Absolute sensors are selected when you need to know where the moving part is in the range upon startup. A valve control is one example.

Incremental encoders are typically used in applications where it is possible to go to a reference position upon starting up, such as a lathe or milling machine. In the past, incremental-type position sensors were lower cost than absolute sensors.

More recently, this cost advantage has faded as absolute sensors have approached the cost points of incremental, but retained and even improved their advantages of reliability, accuracy and response time.