Think of it like an x ray for rock. We expose a radioactive capsule and detect the reflected radiation. Since radiation can travel through solid objects we can use it to determine the relative density of rocks in a certain area which can help identify different minerals. Rocks are much denser than human flesh obviously. So the quick exposure we get from a medical x ray would be too short. Usually intervals of around 60 seconds are needed for the device to get a clear picture.

https://en.m.wikipedia.org/wiki/Nuclear_densitometry

You can use radioactive sources to determine the density of something. The Cs-137 source emits photons when it decays (and betas but those don’t matter here). We know what energy those photons have as well as how many we should see in a second based on what we know about the age of the source itself. You can use that plus a bunch of fancy math to figure out how many photons you should count in a detector a certain distance away. Next we put something we want to know the density of in between the source and the detector and see how much lower our count is. For a lot of common materials we already have tables of what are called interaction coefficients. You use the right table and do some algebra with your measurements and you can figure out the density of the thing you want to measure. This is useful for knowing how well dirt is packed together, how dense rocks are, and it sometimes gets used in manufacturing for quality control.

As an example of how that can end see the Goiânia accident. There the same stuff, caesium-137 inside a secured box, was just thrown away in a trash dump. Then someone found the box, wondered what valuables are inside such a closely locked thing, broke it open and... played around with and spread the glowing magic powder to the neighbourhood. A lot of people got severe radiation doses, it needed very serious clean-up, and people died.

> And how is it lost off a truck if it’s so dangerous?

The honest answer is: because people are sometimes idiots and don't follow adequate safety measures. Somebody screwed up. In the above incident, that wouldn't be the guy who found it (you can't expect random people to know about caesum-137 and its use), but whoever carelessly threw it away.

And the actual capsule thing is so small, I will be amazed if they find it along that very, very long route from Newman to Perth. Does it look hot if you see it in night vision or infra red?

It is often used in calibrating certain radiation-detecting equipment, like Geiger counters. They are useful in mining, for detecting any possible radiation in an area or ore sample. That would explain the need for only a small amount.

In this case it sound like rough handling and a rough road. It's case literally shook apart in transit.

As for what it was use for, it was probably a calibration sample for a piece of detection equipment. An known quantity to ensure the device is reading properly.

As for how dangerous, the worry is more only if it is kept near someone for a prolonged period of time. Especially if it is kept on their person. So they are more worried that someone will for some reason keep it.