Hi,
Choose a micro controller that has a capture-compare unit, that will allow you to measure the time between single pulses. From the time between single pulses you can calculate the speed, from counting the pulses you can integrate the traveled distance. It might also be helpful to have the possibility of raising an interrupt when the signal changes.
As keith1200rs said, you'll have to level shift the signal before connecting it to a uC, that can be done via dedicated ICs (more expensive), or via some simple circuits (use g00gle or forum search to get an overview)
Regards,
Andreas