The tracking system measures position and orientation. From the position and orientation of your head, the computer can determine how to display the virtual world so that it seems your are in it as opposed to watching it on television. When you turn your head the head tracker senses the change in position, and adjusts the displays accordingly.
The head tracker needs to be capable of taking a measurement of position and orientation at least 20 times every second. There also must be no more than a 1/20th of a second delay between when the measurements are taken, and when the visual display is updated. Any slower than this, and the eyes and inner-ear give your brain conflicting information about which direction your head is pointing. This is similar to what happens on a small boat in rough waters: It can make you seasick, or in VR terms, simulator-sick.