Definition
Reduction ratio is the relationship between engine speed and gearbox output shaft speed, expressed as a figure such as 2.6:1, allowing a relatively fast-running engine to drive a larger, slower-turning and more efficient propeller.
Diesels make their power at speeds far higher than an efficient propeller wants to turn. The gearbox resolves that: a 2.6:1 ratio turns the propeller once for every 2.6 engine revolutions.
Why it is inseparable from the propeller
Engine, ratio and propeller are one system. Change the ratio and the correct propeller changes. Change the propeller without knowing the ratio and you are guessing — which is how boats end up unable to reach rated rpm, with all the overload consequences that follow. See how to tell if a propeller is overloading the engine.
Where it matters most
At repower. A new engine with a different ratio almost always needs a different propeller, and that cost belongs in the repower budget from the start rather than appearing at sea trial. Some ratios also differ between shaft and saildrive versions of the same engine.
Where you meet it
On the gearbox plate, in engine data sheets, and on every propeller shop's information request.