“Before considering the issues raised by this technology, it is helpful to understand the basics of its operation. An RFID system is composed of readers and tags. Readers generate signals that are dual purpose: they provide power for a tag, and they create an interrogation signal. A tag captures the energy it receives from a reader to supply its own power and then executes commands sent by the reader. The simplest command results in the tag sending back a signal containing a unique digital ID (e.g., the EPC-96 standard uses 96 bits) that can be looked up in a database available to the reader to determine its identity, perhaps expressed as a name, manufacturer, SKU (stock keeping unit) number, and cost.”
Via /., a technical primer on RFID.