The cylinder head temperature sensor can be found screwed into the cylinder head by the number 3 cylinder. It's simply a little black metal thing with a single wire coming from it.
This sensor is exactly like the intake air temperature sensor in the air flow meter. It's a solid-state resistor, called a thermistor. Its resistance varies inversely with temperature. The warmer it is, the lower its resistance.
The ECU sends the sensor a fixed voltage signal and can tell the engine temperature by the resistance it measures. The sensor can be tested with an ohmmeter at various temperatures to see if it is within original specifications. If not, the sensor must be replaced.
This sensor is one of the main inputs used by the ECU to determine how much fuel to inject, so it is important that it be working properly. If the wiring breaks, for example, the ECU will see infinite ohms as the resistance measurement and will go into a "full-rich" mode where the engine will be running extremely rich and get very poor fuel mileage.