Refer to figure.
To begin with, a direct-reading compass’s indications get weaker near the Poles, are subject to short-term inaccuracies in the form of turning and acceleration errors, and can only be read in one position in the aircraft. Neither can it drive or send information to other instruments.

The gyromagnetic compass tries to resolve these problems by stabilizing (gyroscopically) a magnetic compass and providing electrical outputs to the instruments that need to be read by the crew or systems like IRS or INS.

It is continually sampled for errors, and short—and long-term corrections are sent to the compass and gyro. So, a gyrocompass is a Directional Gyro Indicator that aligns itself.

The main components are:

• The Gyroscope which provides short-term stability for azimuth reference;
• An erection mechanism to keep the axis horizontal.
• The flux valve which is the detecting element for the Earth’s magnetic field.
• A slaving torque motor to make the gyro precess in azimuth at about 2° per minute to align the gyro with the Earth's magnetic field.
• The Transmission and Display System is simply the mechanism by which information is sent to the necessary parts and instruments.

More specifically, the gyroscope used,

• is a tied gyro with a horizontal spin axis;
• It has two gimbals and two degrees of freedom;
• it is controlled around one of its axes, either by mercury switches or a gravity erection system to keep the spin axis horizontal and
• must be aligned with the magnetic compass.