If two wires of different metals are connected end to end it has two junctions. Current will flow in the circuit if one junction is at a different temperature than the other (Seebeck Coefficient). This effect is the same for either junction except for polarity. Call one of the junctions the measuring junction. Separate the other junction and connect the two leads to a current meter. When making temperature measurements, if the current produced by this other junction (cold junction) is ignored, an unknown error is created. If the temperature of the cold junction is noted at the same time a measurement is made, then the error from the cold junction can be added to subtracted from the reading to give a correct answer.
Automatic cold junction compensation is accomplished by sensing the terminal temperature (cold junction) with an RTD. The RTD is in circuit which produces a current equal but opposite to that produced by the cold junction. Thus the current change from the cold junction plus that from the compensation circuit cancel one another. Once this is accomplished then it can be assumed that the current reading on the voltmeter represents the current produced by the measuring junction only.