From what I read in a book, two LEDs are in the clip. One shines a beam
of infra-red. The ammount of light that passes out the other end of your
finger is measured. The other LED shines red light through. Once again,
the ammount of light that passes out the other end of your finger is
measured. The two values are then compared.
The medical term is a pulse oximeter. (I haven't looked at the
link yet so I have no idea if I am repeating previously stated info. Sorry if
I am!)