The transponder on each ship transmits its current location to the owning empire.  These transponders can also be set to transmit ships locations to other empires.  Normally you can register a foreign ship on LRS only as unidentified tonnage.  If the foreign ship's transponder is transmitting on your empire's frequency, you will be able to discern the ship's owner and class.  If you have an official alliance with another empire, all of your ships' transponders will always identify themselves to your ally, and vice versa.