The 'speed sensor' is a little reed switch inside the speedometer assembly. Its function is to tell the ECU the vehicle speed. Since the speedometer is driven by a spinning magnet, the switch 'clicks each time the magnet passes by. The ECU then counts the 'clicks' and knows the vehicles speed.
Similar Questions: My cruise control won't set! Is there a fix?
My cruise control won't maintain a set speed! Is there a fix?
This is usually an indication that the speed sensor [[What is a speed sensor?]] behind the speedometer has failed. Without an accurate speed reference the cruise control refuses to set.
Another possible problem is wear on the clutch pedal, preventing the clutch pedal from coming up all the way. If this occurs the pedal will not press the switch that tells the ECU that the clutch is engaged. Consequently, the ECU "thinks" the clutch pedal is down and it won't allow the cruise control to be set.
An easy test is to pull up the clutch pedal with your foot and try the cruise control again. If it works, you have clutch linkage problems. For more information on this problem, read the answer to this question.
If the cruise control will set, a split vacuum hose caused cruise control to continually drop the vehicle speed. Eventually the hose popped off completely, and the cruise would not maintain any speed at all. Several DSMers have run into this problem
If the cruise control sets and holds speed, but 'hunts' (oscillates) around the correct speed, don't worry too much. Even stock DSMs have a certain point where the cruise control will oscillate slightly. This is due to the nature of the turbocharged engine - when the cruise control speeds the car up, the turbo kicks in and the car accelerates faster than the cruise control expected it to. The cruise is forced to decelerate to compensate, but the car will also slow down faster than expected as the turbo pressure dies out. The net result is a slight, constant surging on and off boost.