The Intake Air Temperature Sensor (IAT) on an engine is primarily used in combination with a Manifold Absolute Pressure (MAP) sensor to determine the density of the incoming intake air.
The density of the air entering the engine is critical as it also relates to the amount of oxygen that has entered the engine. For correct combustion, we wish to have a particular mix of Air (oxygen) and Fuel. The density is therefore part of the equation used to calculate the amount of fuel to inject.
As an example, we will see that on a cold day, the air will be more dense, and hence more oxygen will enter the engine, and so more fuel will be required. The IAT sees this lower temperature as a change in resistance which the ECU measures electrically. A correction factor or calculation will then be used to increase the fuelling accordingly.