It is a variable-frequency oscillator that circulates a small-amplitude signal through an exposed coil, whose electromagnetic field can interact with adjacent circuitry.
[1] Central to the dip meter is a high-frequency variable-frequency oscillator with a calibrated tuning capacitor and matching interchangeable coils, as shown in the circuit diagram.
The degree of coupling affects the frequency and amplitude of oscillation in the dip meter, which is sensed in any of several ways, the simplest and most usual of which is a built-in microammeter.
[1] Solid-state versions of the grid dip oscillator are more versatile, since they can operate at higher Q and lower amplitude, and are not tethered by a power cord.
Dip meters of all types are being supplanted by antenna analyzers, which are more complex, but perform many of the same functions more conveniently, and require less dexterity.
The operator finds the frequency at which the highest rise in meter power occurs in the unpowered GDO, when its coil is held near the wires of an active resonant circuit.