If I understand this correctly, the unassuming image/jpeg/png/gif/pixel is embedded in the email, it's the same color as the background so the user wont notice it. The image itself which has a unique link for each recipient, is hosted in the senders servers, so when they receive the request for the image, they read the HTTP headers for information such as IP address for location, depending on how many requests they get they can count the number of times the email is opened etc