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The ABS sensor is used to monitor wheel speed and rotation, as part of the wider anti-lock braking system. The data it gathers is sent to the ABS control module, which in turn determines how much pressure to apply.
You can still drive with a bad ABS sensor, but given it works as part of a key safety feature, it should ideally be replaced at the earliest opportunity.
An ABS sensor can become faulty if its wires are damaged, or the sensor is covered in debris.
A faulty ABS sensor can result in the ABS warning light turning on; this is typically an MOT failure.