What is the Ambient Light Sensor?

On your model, the Ambient Light Sensor (ALS) controls the brightness of the Status LED on the front of the iMac.

In other words, the light that is on and bright white when you are using the machine... or slowly flashes on and off when the machine is asleep has a brightness that is controlled by the light sensor you are talking about.

In a dark room, the ALS senses that the room is dark, and lowers the brightness of that light, and makes it more discreet/subtle - great if you use the iMac in a bedroom where it would be distracting if always bright.

Likewise, in a well lit room or environment, it increases the brightness of that light so that it is obvious to you that the computer is powered and on (or asleep).

The light does not power at all if the machine is off.

Hope this helps.

Does it also control the brightness of the built-in screen when automatic brightness is on? I don't have an iMac, but that's what the ambient light sensor does in the laptops.

I think you will find that these models of iMacs do not have the option to automatically adjust screen brightness. This may be the case on current iMacs too but this is outside my knowledge. Mac portables that have an Ambient Light Sensor use the sensor to change screen brightness based on the environment you are using the portable in