Very true. Its called the Lambda sensor because its is a unit of measure of volume and corresponds by changing output.Technically speaking its actually a cylinderical element plated inside and out with porous platinum electrodes, the whole assembly protected by a metal gauze. It operates by measuring the difference in oxygen between the exhaust gas and the external air, and generates a voltage or changes its resistance depending on the difference between the two. The amount of oxygen in the exhaust changes depending upon the stichiometric ration of fuel being input. The Oxygen sensor detects the amount of fuel being burned up and changes voltage accordingly to increase or decrease fuelling, in laymans' terms, it helps makes the intake charge either "lean" or "rich".
The O2 sensor commonly uses is called "narrowband".
Other types are;
Wideband
Titanium (Titania)
Their respective construction and ways of metering o2 content is different from narrowband.
On most vehicles, its is used as an "emissions contril" device to correspond to the prevailing emissions regulations. Mostly present in an adapter in the exhaust manifold or near the catlytic converter.