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It consists of two components; Physical and Logic. Both are needed to control the motor through a logic adapter (connecting the Linear Encoder to an external controller through a Logic Simulator ). Adding a Add Control Panel gives you the option to control the encoder from the Unity scene.
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It will automatically be attached to a selected GameObject. Otherwise it will create a new GameObject to attach to.
A Prismatic Joint will be created automatically as part of the component.
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Look at the Logic Component Documentation (add link) for an example of how to connect a Linear Encoder to an external controller.