Pet microchips sit on the border between passive and active devices, in that they are passive until activated with a scanner, upon which they become active and transmit data back to the scanner.
A pet microchip is about the size of a grain of rice, and is placed (by a veterinarian) under the skin, where it stays for ever.
When you take your pet to the clinic, the vet will first use a hand-held scanner to confirm that there is not a microchop already in place. If not, they will inject a microchip under the skin, typically in the loose skin around the neck, using a applicator. For your pet, this is similar to being given a vaccination, though the needle is slightly larger.
You will then be asked for your pet’s details and your contact information, in order to populate the database.
To read the microchip, a scanner induces power in the microchip via the coil and tuning capacitor. This powers up the silicon microchip, which transmits its unique identification code back to the reader. The identification code is used to look up, in an external database, the contact details of the registered owner.
Microchips are vastly successful at reuniting lost pets with their owners, so much so that we have no hesitation in recommending that all of your pets be microchipped. Chances are extremely high that any vet or rescue organisation will scan a lost animal, and as long as your details are up to date, a reunion is imminent. Microchips are harmless, they don't wear out, they don't require batteries, and they very rarely fail.
There are, of course, some disadvantages. The range of a microchip is very small, only a centimetre or two, and it can only be read by the correct type of scanner. That means that your lost pet would have to be picked up by some kind soul, taken to a vet or a shelter, and scanned by the people there. Microchips do not provide any location information, but that is not really an issue since you know a vet is about 1cm away at the time of scanning. The external database has to be kept up to date, and this means that you, the owner, has to periodically update your details in the database and/or confirm that your details are correct. Some databases require an annual subscription, and that has to be kept current. The microchip can only be inserted by a veterinarian, and that has an associated cost. The cost is fairly low, and the discomfort experienced by the pet is really quite small.
People ask quite often if we have microchip devices with GPS capability, which can transmit position periodically over the cell phone network. The simple answer is no, and I doubt whether that will ever be possible. Measuring position via GPS and transmitting information over a long distance like a cell phone, requires physically quite large antennae, and a considerable amount of energy. To operate for a viable length of time of time, that requires a large battery, and a microchip device is simply way, way too small to contain that much circuitry, and store that much power.
In conclusion then - microchips are awesome, pets with microchips have a much higher chance of being reunited with their owners, so if your pet doesn't have a microchip, phone your vet and make an appointment right away. If they already have one, check with your supplier whether your information in their database is up to date, and set a reminder to re-check annually.