Proximity switches open or close an electrical circuit when an object(s) is near. The type of switch depends on the type and size of object you want to sense, as well as on the range at which you want to detect it.
Several types that you might consider are:
acoustic: a sound pulse is sent out, usually at a frequency that humans can't hear, and usually at low levels. Good examples of this are SONAR, whales, and bats.
capacitive: In essence, you make a tuned circuit with the area to be monitored being within the capacitor's field. Then, an object with a dielectric different from air detunes the circuit. The theremin synthesizer is a specialized example of this (If you don't know what this is, rent The Day the Earth Stood Still and listen. You'll love the movie.
light: usually an infrared light beam is sent out and bounces back from an object. Sometimes the light source and detectors are on either side of the object. See the movie Mission Impossible. The movie is terrible, but the detector scenes are good.
There are other methods, but what is your application?
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1) Capacitive proximity switch - It consists of an oscillator, a rectifier & an amplifier. The capacitance between the sensing surface & mass (body) increases when an object aproaches the active surface. When the capacitance value exceeds the preset level, the oscillator generates AC signals. The rectifier section converts this AC signal into DC & the amplifier amplifies this signal to drive a relay or a circuit.
2) Inductive proximity switch - These are used to sense metalic objects.
This is basic (and I think sufficient) information about proximity switches. Also there is detailed information about the same too. If you want to get more datailed information about it write in reply.