How an RPM counter works??

Answer 1

There are mechanical ones, and electronic ones.
1) Mechanical: A clutch, usually made of 2 magnets. One magnet rotates, the other one is fixed to a spring-loaded needle. The faster the first magnet rotates, the further the needle goes clockwise.
2) Electronic:
a) Optical: The drive shaft has a marker in a colour distinctively different from the shaft's colour. A photo reflector (photo diode and photo transistor combination) reads the changes in colour (brightness), and produces pulses which can be electronically counted during fixed time periods.
b) Hall Effect: Instead of colour markers and photo detection, a hall sensor is used at an irregular (metal) shape of the drive shaft. The rest is the same.

Answer 2

1.Cable driven versions use an induction disc which causes the pointer to move.
2. Pulses produced from an electronic system counts pulses electronically
2. Visual types count reflected light pulses from a white mark on a rotating shaft.

there are probably other types.