I just thought about it this morning and I don't have a good answer. Your speedometer works off the plastic gears inside the trans. and off either a cable driven sensor or an electric sensor. The gears inside the trans can be changed to match whatever diff. gear ratio you are running. I understand that the gears work together to get you a correct speed reading.

My question is why isnt the speedometer off when you shift from 1st to 2nd to 3rd... Each gear has a different ratio that affects the final drive ratio. My understanding is that the plastic gears inside the trans are driven off the output shaft or final drive of the trans. I am missing something here if anyone can explain.

 

Right: And that is connected to the drive shaft, which is connected to the wheels. So regradless of what gear the trans is in, the speedo gear system is turning in proportion to wheel speed, which has nothing to do with engine speed.