Flex fuel sensors measure the percentage of ethanol in the fuel running through the engine. The ECU can take this information and make fueling and ignition changes as the percentage changes. This means you can use any blend of ethanol from any pump, provided your car has been tuned correctly. Much less hassle getting stuck out somewhere where there's no ethanol pump or you don't know what percentage the pump is actually giving you. Pump ethanol isn't consistent, you will see variations in pump to pump, season to season, and sometimes day to day if they've just refilled their in ground tanks. Even conventional fuel now has 10-15% ethanol content in it. I personally prefer this over water-meth systems as this is a much safer method to increasing octane. No risk of running out of meth mid run or a nozzle clogging.

 

Flex fuel kit with -6 AN adapters - Floor It PN: S-FF02

There are many advantages and disadvantages to using Ethanol blends.

Pro's

 - Effectively E60 is roughly 110 octane fuel. This means you can make more power before knock occurs especially in smaller displacement or forced induction applications

- Cooling benefits, the first line of defense in engine cooling is actually fuel. Ethanol is an alcohol based fuel and its burns cooler, as well as using more of it compared to gasoline aids in cooling an engine.

Con's

- Because of its higher octane rating its harder to light off. Some ignition systems will struggle to create a powerful enough spark to correctly combust the mixture.

- Ethanol runs richer. The stoichiometric ratio of gasoline is 14.7:1 vs E85's 9.7:1. This means you need to use more ethanol (around 30%) to get a complete burn. This has the by product of engine cooling but requires larger fuel injectors and pumps. Many OEM engines designed for gasoline cannot convert to E85 use without an increase in injector size and fuel pump flow.

- It love's water, which is bad. Ethanol is very hygroscopic, meaning it tends to absorb moisture from the air. This will end up in your oil which is also bad. Do not let a car with a full tank of high content ethanol fuel sit. A catch can system is also basically a requirement of running high ethanol content as this will prevent moisture from getting into the oil. Fuel dilution occurs much faster, oil changes will need to be more frequent. Being and alcohol based fuel and adding moisture means components will tend to corrode faster unless they are built with ethanol use in mind. Most OEM cars newer then the 1980's are designed for ethanol to be in pump gasoline, but many aftermarket parts are not. Be sure to check for compatibility before purchasing fuel system components.  

Location of install is a debated topic. The standard GM/Continental sensors also measure fuel temperature (if you ECU is capable of measuring this, its a complex signal) so ideally the closer it is to the fuel rail the better that data is.
Return line or feed line doesn't really matter. The ethanol blend isn't something that changes after the first few minutes post fill up.
There is a school of thinking that its dangerous to put it in the return in case the return runs dry at the top of a high rpm pull. If you're return ever runs dry the sensor will read 0%, but you have a fuel system problem, that is not normal or a good idea period. 
The tube is roughly the same as a -6 AN line (0.3") which will not be a flow restriction for most setups. 
As usual packing and keeping it away from heat sources play a major role in determining location.

Wiring - The Ethanol content signal is a frequency based signal. Some ECU's have a dedicated input for flex fuel, but not all do. In the case of using a standard digital input you may need to use a pull up resistor.
Holley Terminator for example, you connect the output pin to the Holley's digital input. You will also need to connect a 10k Ohm pull up resistor between the signal wire and the 5V output from the ecu.

 

I have found these sensors will run on anything from 5-12V comfortably. The signal is digital so there is no risk of ground offsets, you can safely connect power to switched 12V and the ground to any acceptable ground. 

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