In short, secure Bluetooth. AirTags connect with your iPhone, iPad or Apple Watch with a simple tap. Then you can choose to have notifications when the AirTag is nearby, or simply look for it when you need. And you can locate an AirTag from literally the other side of the world, using the Find My network.
The secure Bluetooth signal is detected by nearby devices in the network, and then the AirTag's location is sent to iCloud, which you can get through the Find My app. Importantly, all these stages are secure, encrypted and anonymous, so no data is shared.
Each AirTag is waterproof and will keep going for more than a year on a single battery (which is replaceable). But you don't need to worry about being caught out by a dead AirTag. Your iPhone will notify you when the battery is on its way out.