It works off the vibrations of the engine - the resonant frequency causes a sympathetic vibration in the meter. At least that's how they worked back in the day.....they weren't terribly accurate tho.
I understand there are digital ones that use frickin lasers now.
The only kind I've seen work off of a led transmitter/receiver.
Your paint a line with whiteout on a spinning object, and every time it comes around, it triggers the receiver.
I believe these work off the electric pulses through the spark plug wire. I could be wrong though. I need one of these. Did you find a place that sells them at a good price? Link?
I have two non-contact tachs. One uses an IR emitter/reciever combo to count pulses off a reflective tape (or really anything else shiny). The other (which I much prefer) uses the pulses off the plug wire.
It's called an EZ Tach. I got mine at a motorcycle shop a long time ago but you can probably find it on ebay or amazon. I think there is another company that makes them as well. Just be sure the one you choose is ok for a 2 stroke.