Well yours is working fine since it's telling you it's hot. It's just the sensor responsible for being all "hai mr temp needle, you need to move now ^__^" but FWIW it's just before the coolant outlet pipe at the back of the block, near the plenum/intake mani. There's two plugs, one with a red cap (if you remove this your fans turn on automatically), and the other is the temp gauge sensor.
Check you don't have a blocked radiator? If you changed the waterpump, I'm guessing that you flushed the radiator etc...