Here is a full explanation of the principle of the Snellen chart, drawn from the textbooks:
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The chart uses black letters or symbols (optotypes) of progressively decreasing sizes set against a white background.
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The top letter on the chart is designed to subtend 5 minutes of arc at a distance of 200 feet (approximately 60 m).
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Each subsequent row contains letters that subtend 5 minutes of arc at progressively shorter distances (200 ft, 100 ft, 70 ft, 50 ft, 40 ft, 30 ft, 20 ft, 15 ft, etc.).
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Each individual stroke or gap within a letter subtends 1 minute of arc at the designed distance. The letter as a whole fits within a 5 x 5 minute-of-arc grid.
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Adams and Victor's Principles of Neurology, 12th ed.
VA = Test distance / Distance at which the letter subtends 5' of arc
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The pinhole allows only a narrow shaft of light to fall on the fovea, eliminating the blur caused by defocused peripheral rays.
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If VA improves with pinhole: the reduced vision is due to a refractive error or optical media defect (cornea, lens, aqueous, vitreous) - not a neurological cause.
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If VA does not improve (or worsens): suggests macular disease, posterior lens opacities, or a neural/retinal problem.
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Kanski's Clinical Ophthalmology, 10th ed.; Adams and Victor's Principles of Neurology, 12th ed.
For patients who cannot read chart letters, qualitative testing is used (in descending order of function):