Lambda sensor: exhaust gas oxygen sensor, O2 sensor, lambda probe and so on...
A lambda sensor is attached to the exhaust manifold of an engine and as said above senses the amount of oxygen in the exhaust gases and sends this information to the ECU to determine if the engine is running at the correct stoichiometric point (14.7:1 = air:fuel).
I'm not really sure what your dyno is showing you with a lambda value of 0.7 but I'm guessing its the voltage that the lambda sensor is putting out. Normally a voltage of 0.45V shows a good running engine whereas 0.7 would mean your engine's running rich. Lower than 0.45 would mean lean naturally.
I'm sure someone will step up to correct me if I'm wrong. :)