How does a 2 wire digital thermostat work?

Hi,

I would like to understand how my 2 wire digital thermostat works. I guess the two wires are live and ground (AC or DC?). How does the thermostat signal back to the ducted gas central heater to engage? Does it use some sort of variable load? It has me stumped.

I get that it has a thermometer built in to the thermostat to decide when to turn on the heater, but given it’s a powered unit, this doesn’t seem to be possible like in a simple single pole switch like a mercury setup.

Not enough information here to really answer your question. It is probable you have one of two types:
a) The thermostat itself is battery operated, so the two wires are a simple contact closure to operate a furnace only unit (no air conditioning).
b) The thermostat is unique to your furnace model, with a special thermostat receiving unit at the furnace end of the wire. In this case the two modules can work together to supply power and signal on the same pair of wires (the signal waveform is rectified to provide power).
What is the model number of the thermostat?