There is a transponder that sends out a signal from your key. This is read by the ignition lock cylinder. If the key is not within like 10" of the key hole, the car disables the starter so that nobody can steal the car. So basically if somebody hotwires it, it still wont start. Its more of an ANTI THEFT system than a security alarm. Thats why new keys are like $150. They have the transponder in them.
http://www.google.com/imgres?imgurl=...57&tx=71&ty=98
I dont know if that link will work, but i tried finding an example of the transponder type key. They all look different but work the same way