The switch is activated by an external magnetic field.
This field can be provided by bringing a permanent magnet close to the switch, or by passing current through a coil which is wrapped around the switch.

It can be used as part of an intruder detection system, with a magnet fixed to a door and the switch fitted to the door frame.

It can also be used as a high speed relay. Reed relays require much lower operating current than normal relays.