This is from the creator of core temp.
The Innovation
Both Intel and AMD, realizing that the way things were done until now was probably not the best, made up a new way to monitor CPU temperature. This way includes a thermal diode; however, a thermal diode is an analog device and the readings have to be converted to digital data. This is done by an ADC (Analog to Digital Converter).
A thermal diode that is connected to the ADC creates something called DTS (Digital Thermal Sensor). Basically the way it works is very simple - in theory. A circuit in the CPU core samples a reading from the thermal diode and writes the digital value to a specialized register in the CPU, which allows any software to read this value at will. The benefit of this way of measuring temperature is that all this is done internally in the core and converted into digital data instantly - digital data does not lose accuracy when it's passed from place to place, unlike an analog signal that is prone to interference and attenuation.
Another advantage of this system is that you can integrate several sensors into the same die. Both Intel and AMD integrate such a DTS in each of their processing cores, which means that you can see the temperature of each core in your CPU. If you put, for example, a load on a dual core processor and set affinity to one of the cores, you will see that only one core gets hotter - and fast! Of course, the temperature of the second core will also go up, as they are physically connected and share the same silicon, but not as much as the loaded core.
Both Intel and AMD use the DTS to determine an overheating and protect the CPU from damage by either throttling or completely shutting the system down, depending on the threshold that the temperature has crossed.
The DTS was first officially introduced in the Core Duo (Yonah) processor by Intel and it was carried on into the Core 2 Duo series. AMD officially introduced DTS with the release of Rev F chips - however after some testing, it became apparent that DTS was there since the first Athlon 64 chip!
Intel also claims that their DTS is placed in the hottest part of the core, while AMD doesn't say exactly where the DTS is placed, but I am certain it's not one of the coolest parts.
From a lot of testing, I have come to the conclusion that for an Intel CPU, the temperatures reported by the DTS make a lot of sense. Intel's white papers say that their DTS is calibrated and ready to use when their chips leave the factory.
In Rev F chips from AMD, the reported temperature also seems to be quite accurate, but from different reports and white papers I've seen, the CPU leaves the factory without having the DTS properly calibrated. AMD claims it could have an accuracy range of ±14ºC. The only thing I've noticed is some older AMD CPUs either have a very large delta between two cores or sometimes give some really low temperature readings. I guess this is understandable as this feature was unofficial in those CPUs.
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