Magnetic Proximity Sensor, or a Change Over Reed Switch tutorial.  Operation is pretty simple.  When no magnet is near the base, a connection is made through one of the wires, but when a magnet is near the base, a connection is made through the other wire. 

Hardware used in this tutorial:

Change Over Reed Switch , LEDs, and for voltage an Arduino.

Instructions:

-----

If this is your first Arduino project, first go through our “Arduino: Getting Started” and “Beginning Solderless Breadboards” tutorials.

-----

The wiring diagram of the Change Over Switch is pretty simple.  The white wire is common, black is connected when there is a magnet, blue is connected when there isn't.  With that in mind, I wired up a circuit with 2 LEDs. Connect the short (Cathode) pin of both LEDs to the ground rail of the breadboard. Then connect the black wire to the positive pin of one LED, and the blue to the positive pin of the other. Be sure to wire a resistor in series with each LED to achieve the proper voltage for your LED.  See our resistor/LED calculator tool for the proper resistor value.

Connecting the white wire to the positive rail completes the circuit and right away the blue wire LED lights up!  I then took the small magnet ( I used some black tape to help hold it ) and moved it near the circle end of the switch, and the black wire LED lights up!  Pretty simple.  Here is the video  Click here for YouTube Video.

Good Luck!!  Hope this gives you some ideas for your projects.  I have one that I will post in the projects section soon...