Module 43 (or 42) sends a continuous sine wave voltage to the level sender probes in the tank. You might be able to measure this with a multimeter though an oscillosope is better if you have one. It's the amplitude of the waveform that changes depending on wether the probes are sitting in coolant or fresh air

(The reason an ac voltage waveform is used is to prevent elctrolysis eating away one of the probes and it disappearing altogether).
The module 43 senses the amplitude (how big the wave form is) and if it is larger than it should be because there is no water it triggers the module 43 to activate the LED. The temperature guage also contains a microchip that controls the LED flashing sequence. This circuit in the tempertaure gauge is triggered by module 43 - in the event of loss of coolant module 43 sends a series of pulses to the tempertaure gauge microchip which, when triggered, starts the LED flashing - and will continue to flash untill ignition off, any coolant problem sorted and ignition back on. The initial self test is also controlled by the microchip in the gauge.
The main problem with the coolant flashing red light warning system is that the entire coolant level warning system depends on 'resistance'. In a perfect system the only resistance is the presence or absence of water around the probes. However, a poor earth connection will fool the sytem into thinking you have lost coolant. There are three earths that can cause erroneous flashing LED problems -
a) the coolant level probe earth path (usually terminates under the ignition coil via various conX)
b) the module 43 earth (this terminates at the crown earth cluster next to the door pillar)
c) the centre nut of the temperature gage (this earths the microchip in the gauge)
finally, any contamination of the probes or excessive amount of antifreeze will cause problems as these will affect the resistance and the amplitude of the ac waveform and trigger module 43 into action.
As Ghost points out, simply removing the connector at the probes will, after a short delay, start the LED flashing.