From BlenderWiki

Sensor object type

The object detects static and dynamic objects but not other collisions sensors objects.

Detect actor

Sensor should detect only the objects with Actor option enabled. Unset to detect all objects.

Invisible

If the object is set to "Invisible", it isn't rendered in the Game Engine.

Advanced

Collision advanced settings.

Bounds

The Blender Game Engine has a number of ways of dealing with the shapes of objects. The reason that the game engine avoids highly accurate, per face object collisions, is due to the high level of processing power that it would demand. It is often faster, during game play, to uses a simpler system such as a box or a sphere for an object that’s shape is very similar.

The bounds are calculated from the object’s centre, which is designated by the pink dot normally at the centre of your object. It is not uncommon or useful to move this centre to a more convenient location. This can be done in the Editing context (F9) and choosing one of the 3 options that focus around Centre movement (see Mesh for more info).

Convex Hull and static Triangle Mesh are designed for uses with World objects floors, walls, trees, etc.

Blender has no generic way of interacting with hollow objects. An example, which would be difficult to create, would be a cup to shake dice in.

Technical specifications

(from Blender 2.49 Release Notes)

Sensor Object Type

New sensor object to generalize Near and Radar sensor, static-static collision capability.

A new type of "Sensor" physics object is available in the GE for advanced collision management. It's called Sensor for its similarities with the physics objects that underlie the Near and Radar sensors. Like the Near and Radar object it is:

• static and ghost
• invisible by default
• always active to ensure correct collision detection
• capable of detecting both static and dynamic objects
• ignoring collision with their parent
• capable of broadphase filtering based on:
  • Actor option: the collisioning object must have the Actor flag set to be detected
  • property/material: as specified in the collision sensors attached to it.
    Broadphase filtering is important for performance reason: the collision points will be computed only for the objects that pass the broahphase filter.
• automatically removed from the simulation when no collision sensor is active on it

Unlike the Near and Radar object it can:

• take any shape, including triangle mesh
• be made visible for debugging (just use the Visible actuator)
• have multiple collision sensors using it

Other than that, the sensor objects are ordinary objects. You can move them freely or parent them. When parented to a dynamic object, they can provide advanced collision control to this object.

The type of collision capability depends on the shape:

• box, sphere, cylinder, cone, convex hull provide volume detection.
• triangle mesh provides surface detection but you can give some volume to the suface by increasing the margin in the Advanced Settings panel. The margin applies on both sides of the surface.

Performance tip:

• Sensor objects perform better than Near and Radar: they do less synchronizations because of the Scenegraph optimizations and they can have multiple collision sensors on them (with different property filtering for example).
• Always prefer simple shape (box, sphere) to complex shape whenever possible.
• Always use broadphase filtering (avoid collision sensor with empty propery/material)
• Use collision sensor only when you need them. When no collision sensor is active on the sensor object, it is removed from the simulation and consume no CPU.

Known limitations:

• When running Blender in debug mode, you will see one warning line of the console:
  "warning btCollisionDispatcher::needsCollision: static-static collision!"
  In release mode this message is not printed.
• Collision margin has no effect on sphere, cone and cylinder shape.

Other performance improvements:

• Remove unnecessary interpolation for Near and Radar objects and by extension sensor objects.
• Use direct matrix copy instead of quaternion to synchronize orientation.