A laser-based contact less displacement measurement system is used for data acquisition to analyze the mechanical vibrations exhibited by vibrating structures and machines. The analysis of these vibrations requires a number of signal processing operations which include the determination of the system conditions through a classification of various observed vibration signatures and the detection of changes in the vibration signature in order to identify possible trends. This information is also combined with the physical characteristics and contextual data (operating mode, etc.) of the system under surveillance to allow the evaluation of certain characteristics like fatigue, abnormal stress, life span, etc., resulting in a high level classification of mechanical behaviors and structural faults according to the type of application. Smart sensors or latest generation sensors are now use for vibration measurements. Where the first generation sensors are piezoelectric accelerometers, second generation sensors are modification of piezoelectric accelerometers and latest are the smart sensors. Third-generation smart sensors use mixed mode analogue and digital operations to perform simple unidirectional communication with the condition monitoring equipment.