Each individual sock comes with an RFID chip attached to the cuff. Stored on that chip is the sock's unique ID number. The Smarter Socks system also includes an RFID scanner, and a free iPhone app.
After a load of the socks have been washed, the user (or their maid, perhaps) scans the chip on each sock. The scanner sends the data by Bluetooth to the iPhone, which is running the app. That app proceeds to tell the user how old the sock is, whether it's for the left or right foot, how many times it's been washed, and which sock is its partner. Once its partner is located and scanned, the app updates the number of washings for the pair.
(Yeah, I'll do a new xscreensaver release some time soon, but I've got some bugs there I want to look into first. Dali Clock didn't actually require any code changes, just a re-spin.)