4 to 20 mA sensors generally come in two types:
Passive or 2 wire sensors are generally simpler devices that act as variable resistors where the resistance is proportional to the value being measured. Examples are pressure sensors, linear position sensors or potentiometers for user input. These devices are called passive because they do not have an active signal conditioning circuit or digital IC for calculating the value of the output signal. These devices have 2 wires creating a current source circuit when connected to a power supply.
Active or 3 wire devices do have an active signal conditioning circuit or digital IC used to create a current source circuit for the output signal. They require 3 wires because the active electronics require a supply circuit that is separate from the current sourcing signal output.
In our wiring diagrams we generally show the wiring for a 3 wire device where only the current loop output of the device is shown:
For 2 wire passive devices, the power supply becomes part of the current source loop: