Greg,
How does the temperature of the oil turn into an electrical signal that goes to the gauge?
you need a sender which sends a signal to the gauge. For oil theres 2 types, 1 that works well and 1 that doesn't. The one that doesn't work well is the one that replaces your oil drain plug. Thats not the best place to measure oil temperature since its not the hottest place on the engine and the sender is too close to the ground and open to things like speed bumps.
The second type replaces the oil pressure relief plug ( the big slotted screw head under the back of the engine ) this is the ideal place to measure temperature since its just before the oil cooler and you get a more accurate reading at that point.
Oil temperature is an "ok" method of checking whats going on but its also very slow. You get a reading but it takes time and your engine could be running hot before the oil heats up fast enough to tell you something is wrong.
Now how do I know this, my super has oil temperature, oil pressure ( with the dual sender that allows the oil light to work ) cylinder head temperature and also the Gene Berg dipstick sender. Out of all of these the cylinder head gauge and the dipstick sender are the quickest to register changes within the engine.
also you need a sender for every gauge and they are all different. Oil pressure can be single or dual but with the dual you can keep your oil pressure light working. Cylinder head uses a ring and wire that fits under a spark plug usually #3. Oil temp won't work off of the pressure sender and you will need one of the senders I mentioned above. The berg dipstick sender just replaces the dipstick and hooks into your oil light circuit if your engine gets too hot it causes the oil light to flash out of all the fancy stuff I've found this to be the cheapest, simplest, and most accurate.