Mody,

As BH has explained above, exponential is one of the ways in which your input at the TX reaches the servos.

However, potentiometer is not related to the Tx, but to the servos.
This is an electrical device inside each servo, which tells the electronic brain at what deflection angle the arm of the servo is.
Let's say you command the sevo arm to move 10 degrees clockwise, the motor inside the servo starts rotating the gears and the arm, while the potentiometer is watching the movement; once the arm reaches the 10 degrees, the potentiometer sends a signal to stop the motor and lock it in that position until a new command from you is received.
The potentiometer is also the sensor for centering the servo arm in the neutral position (neutral Tx-Rx signal).

Here you can read additional information on how exponential works:

http://www.rmfm.org/dual_rates_and_exponential1.htm

Here you can see some good pictures of the servo guts, including the potentiometer:

http://www.twf8.ws/new/tech/servos.html