Most computers have the hardware built in. All Intel CPU from the PII on have a thermal Diod built into the CPU itself that the motherboard can read. Most AMD systems have a thermal diode under the CPU in the Socket to detect the temperature. There are also thermal diodes built into the Northbridge chip on the motherboard to detect the chipset or motherboard temp. Some also have another diode on the motherboard somewhere to detect case temps. A few even have a probe that you can plug in and attch to something like a hard drive or graphics card. Some hard drives and graphics cards also have thermal diodes, but they are not commonly used.
The temps are monitored in the system BIOS or with a software tool that runs under Windows. All VIA chipset based motherboards come wioth VIA Hardware Monitor, but you can also download other utilities like Motherboard Monitor or CPU Cool to moniotr thwe temp. These programs can detect usually up to three temperature diodes and moniotor at least 2 fan speeds. They also monitor CPU useage, memory and voltages if you want. They can sound alarms if something is running out of range or even turn on cooling features or shut down the computers if needed to save your system if, say, a fan fails.
There are also hardware devises that can do most of these features if your system does not support them. The most well known is the Digital Doc 5. It has an LCD desplay and several probs and plugs to monitar and even controll several fans, and temp sensors. You can also get simple temp probes from Radio Shack if you just want to display a single temp of something you have attached a simple probe to.
Hope this explains things a bit better.
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