The 2001+ Ford Ranger gets its raw speed signal from the OSS (Output Shaft Speed) sensor located on top of the transmission (not on the transfer case). The OSS sensor is a magnetic pickup that provides transmission output shaft rotation speed information to the PCM (Powertrain Control Module) where it is corrected for tire diameter and axle ratio.

The PCM uses the OSS sensor signal to help determine EPC (Electronic Pressure Control) pressure, shift scheduling and TCC (Torque Converter Clutch) operation. The PCM outputs the corrected VSS pulse to the speed control and the cluster. In this system the PCM is the correction and distribution point for the VSS signal.

If the speed sensor on top of the transmission goes bad, it cannot only affect how the speedometer works, but can also disrupt how the transmission shifts.

If you lay under the truck and look up towards the top rear of the transmission from the drivers side, you'll see the speed sensor (OSS). It's shown in the photo below. The photo was taken with the plug removed to show the sensor and the plug.

As you can see, the wire insulation was removed at the plug. This could cause a short in the sensor circuit.  When this sensor was  replaced, the wire was coated with a brush on liquid electrical tape to insulate the bare wires.

The speed sensor is held in place by a single 10mm bolt and is a simple repair.

The speed sensors aren't very expensive. Here are some part numbers with prices as of 04/2017:

ATP Output Speed Sensor Part No. FE-18 - $22.00

BWD Transmission Output Sensor / Vehicle Speed Sensor Part No. SN7305 - $37.00