[Al_The_Man]

I am not sure if you mean incremental encoders above around 100p/turn, below around 100p/turn the light/photo source can differentiate between the individual slots, above that a light/photo source does not work due to the very narrow slot, high resolution encoders still use a slot grating chrome plated or photo etched into the glass This applies to both rotary and linear types.
Above a certain resolution a phenomena known as the moire effect is used. ( I dont profess to know the physics behind the moire effect).
But you may have observed this when light shines through a fine mesh or sheer drapes etc, you can observe a swirling pattern effect ( no I wasn't smoking anything)!.
In a fine graticule encoder e.g. 1000 p/rev, a small piece of grating material is carried by the moving photo head assy and is slightly skewed in relation to the main grating. The effect is, that due to the moire effect, the photo reciever now *sees* an alternating light-dark band, the width of each band is around half the verticle height of the grating, the alternating bands move like a shutter, perpendicular to the direction of motion, i.e. on a linear scale, if the head is moving in a horizontal direction the 'shutter' appear to be rotating up or down,depending on the direction of movement.
This is obviously much wider than the space between the grating, the band will change from light to dark for one increment of the scale.
I hope I have put this in some meaningfull way, but it is one of those
things that is easier with pictures.
Al