On P2 and P3 modules, the light sensor was normally affixed with conductive silver epoxy (evidently, the part did not fare well, when exposed to soldering-level temperatures). Part of the problem is the gold-plated pads the sensor went on (no adhesive sticks well to gold...it's one of the best naturally non-stick surfaces around). The other part is the passage of time; after 40+ years, the epoxy had just lost it's stickiness. All that's need then is a moderate sideways jolt, and the part breaks free. I've seen dozens of watches with such "loose" sensors. The fix is simple; just scrape or gently sand the old adhesive off the part, to expose the connection pads at the ends, and re-attach using conductive epoxy (any modern composition is probably vastly better than anything in use 40 years ago).
This a CdS (cadmium sulfide) sensor, so resistance decreases as light input increases. With the sensor detached, the module "sees" that as zero resistance, and turns the brightness all the way up. So, no sensor = full brightness display. Aside from the increased battery drain, this causes no damage.
As an aside, on later modules (P4s, Ladies models), the sensor IS actually soldered to the board, effectively eliminating this failure mechanism.