[Dustin Andrews] built this add-on board which works as a proximity sensor. He wanted a standalone sensor for his Arduino projects which would use a single pin as a trigger. This lets him alert the Arduino when an object approaches the sensor without the need for polling or extra code on the Arduino side of things.
As you can see, a single chip on the board takes care of all the work. That’s an ATtiny13, they’re inexpensive and sometimes you can even salvage them from consumer electronics like this color changing light bulb. The microcontroller monitors the phototransistor which is wrapped in electrical tape to isolate it from the IR LED emitters on either side. This setup creates a reflective sensor. When an object nears the board, the infrared light from the emitters reflects off of it and onto the phototransistor. And since the Arduino works as an AVR programmer you don’t need special hardware to program the device.