here is a link I found that has some information about how Rotary encoders are normally used commercially. The basic concept is used for any time you have some kind of a wheel that turns back and forth and you want to know how far it went in either direction. If you look at this article from National Instruments you will see how the raw decoder works. It is a quadrature decoder with an index. The article below has some diagrams to illustrate how the raw encoder works.
http://www.ni.com/tutorial/7109/en/now don't let yourself get snowed by the heavy jargon and all the tactical stuff. This type of encoder is pretty straightforward and is used in lot of the industrial designs. Something like that is used inside your typical mouse for the mouse wheel. Now here's the problem. You have to have a counter to count how far forward and how far backwards the wheel has moved. The wheel movement is very precise and exact and it can resolve positions down to a few thousand 7 inch, if you really need to. However, the ordinary wheel mouse has a little indentation and it did cause the wheel to jump in incremental steps and that prevent you from making very precise measurements. You have to accept the stepping acid is unless you want to redesign the wheel.
Now if you decide to go ahead with using the wheel on the mouse, you'll have to begin to some way of decoding the signals that come from the USB cord.
In fact, to make use of the mouse in almost any application you're going to have to have a small computer to count the pulse is from the encoder or else decipher the USB serial data. In other words, you cannot use of real in a simple mechanical counter. You might be better off just designing your own motion detector and calibrating it yourself.
My guess is you want something that's economical, and building it yourself probably would be the best answer. Off the top of my head I don't know of any low-cost method to track the movement of the servo. However, people would build model airplanes and model cars are deep into this sort of thing and they probably have some ideas about how you can measure servo movement and get the information back in some form.
Off the top of my head that's the best I can do for the moment.
It might help if you could tell what your application is and why you need to have some type of linear measurement tool.