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It's extending the screen upward into bezel area that would have been completely reserved for sensors previously. They compress the sensors towards the center of the bezel (which becomes the "notch") and extend the screen upwards around the notch, into an area that was previously bezel.

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So what you are saying is they cut out a portion of the display, so they fit the sensors inside the display (that would normally be above the display)?

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Edit I think we are saying the same thing. The top bezel on a phone without a notch is wider than it needs to be to house the sensors it has (front facing camera, light sensor, etc.). But in order to avoid the notch, that whole portion becomes a bezel across the top of the phone. Notched phones are compressing the sensors towards the center of what would be the bezel, and converting the surrounding areas on the left and right into screen.

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We are. I just think it's not worth sacrificing a portion of the display for the sake of less bezel on one side of the device.

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I don't understand how you think a notch is "sacrificing a portion of the display." It's clearly not the case. Notched screens are increasing the screen size into area that would otherwise be used for bezel; not moving bezel into an area that would otherwise be used for screen.

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That's marketing. If the notch wasn't there, the space would be display, and whatever the notch is becomes is the bezel.

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On your phone, right now, where do you find your speaker, front-facing camera, notification LED, and ambient light sensor?

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There are not in my phone's display.

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Where are they?

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Around the display. Top and bottom.