A manual transmission uses a series of different-sized gears to multiply and transmit power from the engine to the wheels of the vehicle. It does this by using gear ratios. In a system of two gears, in which one gear is powered, when the powered gear must turn three times to make the unpowered gear turn once, this system has a gear ratio of three-to-one and multiplies its input power. In cars, lower gears have higher ratios.
In a manual transmission, a shaft comes off the engine and goes into the transmission, termed the input shaft. Inside the transmission, the input shaft turns another shaft, called the counter shaft. On the counter shaft is a series of gears, increasing in size. In a four-speed transmission, there are four gears on the counter shaft. Each of these gears spins another gear that is on the output shaft, which is a third, un-powered shaft that goes out to the wheels. This is what constitutes the gear ratios. The first gear on the counter shaft is small in relation to the gear it turns on the output shaft, creating a high ratio, such as three-to-one, and multiplying the power from the engine.
In neutral, all four gears on the counter shaft are spinning all four gears on the output shaft, but the gears on the output shaft are spinning freely around it, and not turning it. When the driver shifts into a gear, he locks that gear onto the output shaft, stopping it from spinning freely so that it, driven by its corresponding gear on the counter shaft, turns the output shaft and therefore the wheels. The clutch disconnects the input shaft from the engine, taking power off the countershaft and making it easier to lock another gear in place.