In Orbiter, most spacecraft and space stations have transponders (more realistically beacons). These allow precise velocity and location matching with the Docking HUD, usually as a precursor to precision docking with IDS.
Orbiters transponders are similar to the tracking beacons used by rockets and planes, which are also called transponders. Those devices reply to a special radar signal by emitting a stronger signal of the same way as response, usually encoded with status information, like altitude and speed.
In orbiter, the beacons are modelled like they transmit vehicle name, radius vector and relative velocity vector to the radar which activates them.
Using transponders in orbiter
To set a vessel's transponder frequency, using the COM/NAV Receiver MFD and edit the XPDR line.
To find a vessel's transponder frequency without changing focus to it, use the Object Info window (ctrl-I).
To track a transponder, use the COM/Nav Receiver MFD to tune a nav receiver to the transponder frequency. Then use the Docking MFD (with shift-n to select which receiver is in use) or the Docking HUD (with ctrl-R to select the receiver). Note that transponders do not have infinite range.