This rangefinder type works by transmitting an ultrasonic pulse and measuring the time it takes to receive the echo. This time divided by the speed of sound in air and further divided by two gives the distance to the reflecting surface.
The limits of ultrasound (aka ultrasonic) rangefinders are mostly limits of distance: for portable units I have seen limits of 20 meters. Ultrasound rangers are famously used in Polaroid instant cameras, and also as standalone units used for quickly measuring rooms in the real estate business. Bosch makes one. There are also cute little ultrasound rangefinders for connecting to the Basic Stamp.
The ultrasound rangefinder depends critically on knowing the speed of sound; this speed varies with temperature, in air at around 20° the speed of sound is 344 m/s, and it changes by 0.17% for every °C. Thus, an electronic thermometer is often built into the rangefinder. If you wanted to be really obsessive, you should also take into account the fact that ambient humidity changes the speed of sound; apparently a change from 0% to 100% relative humidity produces a speed change (and thus an error in distance measurement) of 0.3% at 20°C. To summarize, anything that influences air composition and density will change the speed of sound - this effect can be significant depending on your application.
Ultrasound rangefinders are also used in industrial applications to measure the level of fluids in tanks and of granular materials in silos. They are not very good for measuring the level of absorbing materials, like liquids that produce foam.
thanks to m_turner for making me node this.