There are two main types of pulse oximeter: transmittance devices and reflectance devices. Transmittance pulse oximeters are the most common and work by transmission (i.e. shining a light) through tissue, usually a fingertip or ear. As the light passes through the body part, the amount of oxygen in the blood determines how much light is absorbed in the tissue. A light detector on the other side of the probe detects light that is not absorbed, and a microprocessor calculates the oxygen saturation in the blood. Reflectance pulse oximeters are placed on the skin surface and measure the light reflected off the tissues rather than through the tissue. In this way, absorption is measured to calculate oxygen saturation. Of note, reflectance devices are inherently more difficult to design to perform well.
References: Lifebox Pulse Oximetry Learning Module
Keywords: transmittance, reflectance, light, absorption