A distributed optical fiber sensing system based on a bidirectional chaotic fiber ring laser has been proposed. The output waveforms induced by an external disturbance in some period are different from those in other time. This period equals the time difference between two counter-propagating beams arriving at the semiconductor optical amplifier (SOA) from the disturbance point. It is utilized for the disturbance location. In this paper, the location mechanism is explored by investigating optical interaction in the SOA in two simulation systems with a continuous wave optical source. One system is for studying the interaction of a continuous wave beam and a phase modulation beam input into the SOA from the left and right sides respectively. The other system is for investigating the interaction of two phase modulation beams counter-arriving at the SOA with a certain time difference. Under a small SOA current, only the transformation of the phase modulation to intensity modulation occurs due to the interference caused by facets reflection of the SOA. With the increase of current, the cross-gain modulation effect of the SOA makes the interference signal in one beam copy to the other one reversely in the phase, which generates the time difference characteristic. For the chaotic sensing system the situation is similar to the large current case in the second simulation system, only the conversion of the modulation format is achieved by the sensitivity to initial values of chaotic systems. The cross-gain modulation effect in the SOA contributes to the time difference location method.