piezo is a word to describe materials that produce electricity under pressure. If you have one of those candle/oven lighters thet normally have a peizo crystal that is squashed and produces a spark that ignites some gas
As far as guitars go it generally involves piezo crystals under pressure. changes in the pressure produce a very low current. This current is the signal and needs a pre-amp to boost it to normal pickup levels
this particular system i am using has a piezo sensor in each saddle, and a wire from each saddel going to the pre-amp. Most systems that fit electric guitars are similar. Acoustic guitars with piezo's usually have a piezo strip under the saddle. other strings instruments like violins and cello's have a piezo sensor attached to the bridge
i believe the throat mic's used by the military use piezo technology
there are may ways to detect a strings vibration and most can be used as a pickup device. We are used to detecting the vibration by focusing on changes in the magnetic field. piezo pickups focus on the pressue changes, usually at the bridge. there are other ways such as optical pickups which focus on the actual movement of the string and how that changes the reflection from an light source
piezo by itself tends to be a bit harsh, possibly because they tend to focus on string movement at the bridge. thats why EQ is important when buying an electro acoustic with and under saddle tranducer
on the one i am making here we are using graphtech saddles which actually makes a lot of sense with piezo pickups, it helps to take away some of the harshness present in other systems and is naturally more acoustic sounding from the start
PS. Here is some info on optical pickups
http://www.lightwave-systems.com/index.htmli havnt been convinced its a viable alternative yet but it may be one day
