The Action Cam sensor outputs 14-bit linear values which are log encoded to 12-bit for transmission to the Action Cam recorder. The 12-bit conversion means the light hitting each pixel is represented by a value from 0 (total black) to 4095 (maximum white). A maximum white (clipping) level gives a value of 4095, half this amount of light (one stop less) gives 2048, and half this amount of light (one stop less again) gives a value of 1024.
Therefore, if the 14-bit to 12-bit conversion was linear a high proportion of the values would be used for highlights (half of all the values for only the top one stop!), leaving very few values available to capture the detail of mid-tones and shadows. To ensure this is not the case the log encoding to 12-bit is applied to sensor data in a similar manner to cameras such as the ARRI ALEXA. The log encoding means that across the majority of the exposure range there are an equal number of values available for each stop of light level.
This allows details to be preserved in the shadows, with a lossless translation of sensor data into recorded 12-bit values. The scheme is altered towards the extreme highlights where the number of values per stop is reduced. This region contains largely unused information, so the number of values is marginally reduced in comparison to the rest of the exposure range.
Because of the fidelity maintained in the shadows and mid tones, the 12-bit RAW data can be converted to 10-bit RGB for delivery into post with a very high degree of accuracy across the exposure range.