Whether analog or electronic, digital or graphic, a CHT gauge does just what the name says - it displays the temperature of the cylinder head. The gauge gets its information from a probe screwed into a cylinder head or, in some cases, a ring seated around the base of a spark plug.
Most simple piston-powered single-engine aircraft have only one CHT probe; many do not have any. The two basic types of CHT probes used are thermocouple, which is made from two dissimilar metals, and a simple resistance probe. In both, heat energy is converted to electrical energy, which is transmitted through wires to the gauge. The gauge is basically a millivolt meter that responds to the electrical input and converts it to a usable reading.
Given the environment that probes live in, problems are to be expected. In fact, probes are relatively reliable. Problems are more likely to occur from the chafing or wear of wires leading from the probes to the gauge, or in the gauge itself.
If all components of the CHT system are working properly, a below-normal gauge reading could mean the engine has not yet warmed to operating temperature, or it could indicate the cylinder is not making power. An abnormally high indication could mean the cylinder is not being cooled sufficiently, or the mixture is burning too hot because of detonation or some other potentially serious problem. A persistent abnormally low or high CHT reading is reason for immediate investigation by a mechanic.
An airplane equipped with an exhaust gas temperature (EGT) gauge (see "What it Looks Like: When an EGT Probe is Installed," November 2000 AOPA Flight Training), as well as a CHT gauge, provides a pilot with better tools to analyze the ongoing health of the engine.