The latest vehicle diagnostic system that BMW Group uses (introduced in 1994 and currently used at the dealer level) is named GT One DIS(plus) and stands for Group Tester One (the base program.) The GT1 runs applications like DIS (Diagnosis and Information System, and TIS (Technical Information System.)
GT1 is a networked application that uses both hard wired Ethernet and Wireless connections to communicate with other diagnostic systems (i.e. Measurement Systems) and your vehicle. The vehicular connection is through a wireless Diagnostic Head unit.
Hardware wise, the GT1 is simply a glorified laptop running a UNIX operating system. It isn't even a powerful one considering that the software specs only require 128M of RAM and a 500Mhz Pentium Processor. You see where I am going with this right?
The key piece of technology here is the elusive Diagnostic Head. This proprietary piece of hardware (which replace the old Orange or MoDiC III) is the almost prohibitively expensive.
Diagnostic cables plug into the Head and receive power from the vehicle through the OBD2 16Pin connection or the 20Pin under hood connection. http://en.wikipedia.org/wiki/OBD-II
Other Multi Function Cables also connect to the Head to measure temperature, voltage, DC current, etc.
You can read more about it here:
(Ps. for those of you who have been wondering, I finally figure out what EDIABAS stands for, it's German (duh) Elektronik DIAgnose BASissystem and mean "Electronics diagnosis basic system."