paddysaab,
Ah Ha, that's the question ! Yes, it's the sensor just beside the 'stat housing which drives the gauge. The one on the back of the head in the middle of the inlet manifold controls the mixture, and the one in the top of the radiator runs the fan. All clear so far !
Did you check out the 'old' stat when you took it out. Was it sitting partially open at ambient temps - should be tight shut this weather. Stick it in a pan of water on the stove. It should start to open near to the stated temperature. OK, so most of us don't have a suitable thermometer. If you watch until little bubbles start to form on the bottom of the pan you won't be far off 80 centigrade. Time from then to a rolling boil and a linear time / temperature relationship won't be too far off. It should go from shut to open over about 5 degrees.
Paul @ Kippen.