Before RFID can be understood completely, it is essential to understand how Radio Frequency communication occurs.

RF (Radio Frequency) communication occurs by the transference of data over electromagnetic waves. By generating a specific electromagnetic wave at the source, its effect can be noticed at the receiver far from the source, which then identifies it and thus the information.

In an RFID system, the RFID tag which contains the tagged data of the object generates a signal containing the respective information which is read by the RFID reader, which then may pass this information to a processor for processing the obtained information for that particular application.

Thus, an RFID System can be visualized as the sum of the following three components:

1. RFID tag or transponder
2. RFID reader or transceiver
3. Data processing subsystem

An RFID tag is composed of an antenna, a wireless transducer and an encapsulating material. These tags can be either active or passive. While the active tags have on-chip power, passive tags use the power induced by the magnetic field of the RFID reader. Thus passive tags are cheaper but with lower range (<10mts) and more sensitive to regulatory and environmental constraints, as compared to active tags.

An RFID reader consists of an antenna, transceiver and decoder, which sends periodic signals to inquire about any tag in vicinity. On receiving any signal from a tag it passes on that information to the data processor.

The data processing subsystem provides the means of processing and storing the data.

RFID systems can also be differentiated based on the frequency range it uses. The common ranges are Low-Frequency (LF: 125 - 134.2 kHz and 140 - 148.5 kHz), High-Frequency (HF: 13.56 MHz) and Ultra-High-Frequency (UHF: 868 MHz - 928 MHz).

Low-frequency systems have short reading ranges and lower system costs. They are most commonly used in security access, asset tracking, and animal identification applications. High-frequency systems, offering long read ranges (greater than 90 feet) and high reading speeds, are used for such applications as railroad car tracking and automated toll collection. However, the higher performance of high-frequency RFID systems incurs higher system costs.