Kelvin,
In essence, an RFID reader simply tells you the ID (7 digit id) of all tags in the read zone that have responded to its request. It has no knowledge of the distance or precise location, just that the tag is currently positioned somewhere within range. The reader broadcasts a signal on a particular frequency, say 13.56 MHz. When a tag in the read zone collects enough energy from the broadcast, it backscatters (reflects back) and responds with data such as its tag id.
You need a reader/writer, transmit and receive antenna and the tags. Each tag has an antenna and integrated circuit built in including capacitors to store the charge it needs to power the transmission.
Tags can be passive or active. A passive tag simply reflects back its factory programmed id. An active tag is battery powered, can be used to return data that has been programmed in and generally has a longer range and is more reliable.
You should visit Wikipedia
formatting link
for a great article and explanation.