As far as where it is, it's actually on the Thermostat housing, here:
http://repairguide.autozone.com/znetrgs/repair_guide_content/en_us/images/0900c152/80/0a/88/e8/medium/0900c152800a88e8.gif
As far as what's wrong, it could be the sensor is bad, the gauge is bad, or there is a problem with the wiring in between. Here's the procedure to check the sensor, which is most often the problem.
1. Check the appropriate fuse before attempting any other diagnostics.
2. Disconnect the sending unit electrical harness.
CAUTION
Never open, service or drain the radiator or cooling system when hot; serious burns can occur from the steam and hot coolant. Also, when draining engine coolant, keep in mind that cats and dogs are attracted to ethylene glycol antifreeze and could drink any that is left in an uncovered container or in puddles on the ground. This will prove fatal in sufficient quantities. Always drain coolant into a sealable container. Coolant should be reused unless it is contaminated or is several years old.
3. Remove the radiator cap and place a mechanic's thermometer in the coolant.
4. Using an ohmmeter, check the resistance between the sending unit terminals.
5. Resistance should be high (74 ohms) with engine coolant cold and low (9.7 ohms) with engine coolant hot.
It is best to check resistance with the engine cool, then start the engine and watch the resistance change as the engine warms.
6. If resistance does not drop as engine temperature rises, the sending unit is faulty.
