Chain length is altered by removing links. Adjustment of the rear wheel location is used to provide correct chain tension for the fixed or epicyclic gear box rear hub. The diagrams below show the correct chain length for a deraileur gear.

The left hand diagram shows how the derailleur should look when the chain is on the smallest freewheel cog and the smallest chainwheel. The other diagram shows the same chain riding on the largest cog and the largest chainwheel. Links need to be added or removed until these two conditions are reached.

From: Sloane, "Sloane's Complete Book of Bicycling,"
Simon & Schuster (1995)