The phase detection is explained here very clearly (page 3)

http://computer.howstuffworks.com/mouse2.htm

I understand that PICs have been used as the uC

If there's anything that gets thrown away in big numbers it's
mice. They're great for microswitches, leads, IR and other
components

--
http://www.piclist.com hint: The PICList is archived three different
ways.  See http://www.piclist.com/#archives for details.