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The above setup uses interrupt service routines (ISRs) to interpret a rotary encoder.  The specific rotary encoder used also contains an RGB LED, which is driven by PWM.  There is a video in the full article.

Here is a link to the full article: http://0xfebytes.blogspot.com/2013/08/rgb-rotary-encoder-with-pwm-and-isrs.html
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