The indicator contains liquid crystals that change their polarization of light in response to temperature.
A propane tank contains liquid propane, which creates a vapor that fills the space above the liquid level.
When the vapor is drawn off to be burned, the lowered pressure causes more liquid to vaporize, which lowers it’s temperature by an effect known as Joule-Thomson cooling.
This makes the vapor space cooler than the liquid, so the indicator changes polarization, and therefore the reflection of light off it, changing color. So, where the color changes is the approximate level of the liquid propane.
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