it uses a scrambled wireless signal. kind of like bluetooth. when you get in the vicinity of the car, it senses the keyfob and allows you to start the car. AFAIK, the Mercedes keyfob still needs to be inserted into the ignition, but doesn't have to be turned...? not sure on that, tho.
Saab has something similar for the ignition on the 9-3 as well. you plug it in and turn and the car starts, but it doesn't look like a traditional key.
