As shown in above figure on the fix base, there is a laser on one side and LDR with pulse generator on other side. Both are housed in wooden cabinet. The agreement is made such a way that the laser beam straightforward falls on LDR. The stepper motor is placed on top of laser as shown. The slotted wheel is coupled with the shaft of motor. The wheel is such a big that it can interrupt the laser beam falling on LDR. Now as the motor rotates the slotted wheel also rotates. The beam will fall on LDR only when the slot comes. This will produce one pulse. So every time when slot come inline with LDR and laser, one pulse is produced. Thus the rotation of motor is converted in to pulse that can be counted.  

The complete system is very big to accommodate in one page so I am dividing it in to three different section and these sections are as follows. Please click on the link to see detail description of each section.