This paper introduces fiber Bragg grating (FBG) based on a fiber optic grating sensor developed to be embedded on mechanical equipment for digital monitoring and health diagnosis. The theoretical and experimental researches on the new-style FBG sensor (FBGS) technology, high-speed demodulation, and data transmission are discussed. The transmission characteristics between the FBG and the detection interface, modeling and compensation method for online distributed multi-parameter digital monitoring and methods for data processing, synchronous sampling, and long-term dynamic digital monitoring using embedded technology are also presented. The acquired information by an FBGS can be used for the optimization of maintenance schedules and refinement of mechanical equipment design. It is a challenge to gather real-time data from components working at high speed and in a severe environment of high temperature, high pressure, and high rotation speed. Currently, there are no sensors or technologies available for digital monitoring and health diagnosis under this rigorous situation for use in mechanical engineering operation safety. As a result, this paper introduces an online distributed and integrated digital monitoring system and health diagnosis. The new principle and new method will contribute to modern measurements in science and technology, mechanical engineering, and large mechanical equipment operation safety.