The Link Rate tool estimates the round trip transfer rate of a data link by sending a series of ICMP echo requests (pings) of different sizes and comparing the relative time it takes to send and receive each one. For example, if we send a ping of 52 bytes and 1052 bytes and measure the round trip time of each one, we can estimate that the round trip time of the larger ping will increase by the amount of time it takes to send an additional 1000 bytes to the destination and back. The Link Rate tool computes the data transfer rate based on the measured time to transfer these bytes.
Notice the round trip time can fluctuate due to variations in network load and the responsiveness of the target, so this is only an estimate. By choosing the target carefully and comparing a few estimates however, we can usually get a fairly good idea of the approximate link rate.
For asymetric data links that are faster in one direction than the other (56K modem or ADSL for example), the Link Rate tool estimates the aggregate up/down link rate which is likely to be dominated by the slower direction. If traffic is split accross more than one data link (connection teaming for example), this can also generate unexpected results.
Generally you can find the first router on the other side of your Internet connection (dialup, cable modem, or DSL) using the TraceRoute tool and use this as the target. By measuring the rate over this single link, we minimize the effects of competing network traffic from the rest of the Internet.
When measuring slower links such as a dial-up analog modem, ISDN, or even DSL, other fluctuations tend to be small compared to the data transfer time.
You can use the Link Rate tool to measure the current round trip connection rate of your modem, DSL line, or even AirPort wireless (which varies depending on radio conditions).