Incremental and Absolute are the two main encoder types, all versions are based from these.
Incremental
Most popular. Using two or more reference points, are able to track the direction and rotational speed based from current position. Some of these can have an “index” sometimes called “encoder index, marker channel, zero pulse, or index channel” which is used for homing the encoder and providing a single absolute position reference.
Absolute
Unique output code for each position, do not use a reference point like incremental type.
Additional encoder types based from these include Optical, Mechanical, and Magnetic.
Optical
Most popular version of all the encoders, typically incremental type, using light to detect the position.
Mechanical
A mechanical incremental type, which typically provide tactile feedback.
Magnetic
Typically incremental style, usually integrated chip form, sometimes shaft style, using internal or external magnets to detect position.
Chart showing tradeoffs:
See also:
Serial Protocol Options for CUI encoders
Capacitive, Magnetic, and Optical Encoders – Comparing the Technologies
Understanding Encoder Output Signals to Aid Optimum Device Selection