A chassis dynamometer has one or two steel drums, called rollers, and the vehicle's wheel is placed between them.

But, after the engine's installation in the vehicle, it connects to several other items and devices, and it has to drive them, which absorbs some of its power. When the engine is tested with an engine dynamometer, which measures the power straight from the engine, it will show readings that are higher than the ones collected from a chassis dynamometer. In some cases, the power 'at the wheel' was 2 thirds from the power measured at the engine. Also, the fact that the rollers are made of steel is important, because the tires may slip, an the results will be quite altered in this situation.

Many of the parts from the transmission system absorb a small amount of the the engine's power. This is called transmission loss, and the modern dynamometers are built in such way that they can calculate this transmission loss aproximately.
How do they do this? - With the help of special computer software.

This dynamometer software can calculate and predict transmission losses, and it can also simulate real life driving conditions, or even racing conditions. Or at least that's what it's developers say, because according to some mechanics and engine tuners it's not accurate at all, and its results are not true.

So, the most accurate and sure method of calculating transmission losses is to measure the engine's power with an engine dynamometer first, and then with a chassis dynamometer. The difference between these represents the real transmission loss.

Also be sure that the tires are properly inflated, because tires that are not inflated can absorb a lot of power and the dynamometer's readings will be inaccurate.