Step 1: Parts
2. Range Sensor (I used a Parallax Ping))) that I picked up a Defcon a couple of years ago, anything like this would work as well http://www.sparkfun.com/products/639)
3. A small speaker (I pulled mine out of an toy moose that sang Blue Christmas)
Ultrasonic range finders basically work by sending out an ultrasonic signal and then they sense how long it takes to come back. Think sonar for a submarine.