A Lambda, or O2 sensor might be described as a chemical generator. When it is heated to a minimum of 600F (about 300o) it will begin to produce voltage ranging from 100 to 600 millivolts. Once this temperature is reached, the sensor will begin to respond to changes in the content of the exhaust oxygen (O2). When the exygen content of the exhausts is high, the engine control computer assumes that the engine is running lean.
The theory behind the O2 sensor is that an engine running at correct air-fuel ration of 14.7:1 will consume all of the oxygen and all of the fuel simultaneously. If the engine is running rich, then the oxygen will be consumed before the fuel. The average oxygen sensor has difficulty distinguishing between a rich-running and perfect-running engine. However, a lean running engine will leave large amounts of residual oxygen in the exhaust.