The incremental encoder provides specific pulses for the encoder rotation, and these pulses may be in one or two lines of pulses. These lines are typically designated as "A" and "B" channels, and the offset phasing of the channels, which is also known as the quadrature, helps determine rotation. The signals are created by a sensory array inside a printed circuit board, and the rest of the incremental encoder includes a spindle assembly and cover.

More advanced encoders include additional channels, such as a "Z" channel using one pulse per revolution to provide pulse count verification and homing for the A and B channels. Some encoders allow the addition of commutation channels, such as channels U, V and W. These are aligned to the servo motor's commutation windings and help ensure the servo motor's drive and amplifier are providing current to the windings at the correct level and in the correct sequence. This versatility means that incremental encoders are useful for light-duty, heavy-duty and industrial applications.