How Gearing Effects HP from 1-3rd in 727's

If your trans gear ratio is 2:1 for a simplified example, and the engine is at a given RPM, the wheel torque would be doubled by the trans gearing but the wheel speed would be halved. Since wheel HP is the product of (wheel torque) X (wheel speed) X (a constant conversion number), the 2x torque is canceled by the wheels being at half speed, and the resulting wheel HP would stay the same. So that is why wheel HP does not change with trans gearing.

All that the chassis dyno can directly measure is how quickly the car can accelerate the rotating mass of the drum(s) and any rotational drag load placed upon them by the dyno's equipment. It then can mathematically compute wheel HP and torque from the acceleration and known rotating mass & drag load, using an accurate measure of wheel diameter as an input.

It then makes some assumptions on the power loss through the rear gears and trans to make a stab at computing flywheel HP/torque. Putting the trans in top gear at 1:1 makes the trans loss it's lowest, (since the power/torque is coupled straight through); that makes the assumptions on trans power loss as accurate as they can be.

If you wanted really close numbers on the engine, then by all means an engine dyno is best. But once you have a chassis run, and if you keep the same wheels/tires and driveline numbers, relative changes in the engine will be reasonably accurate. How good do your numbers need to be? Unless you are running an engine program, or building engines for a living, pulling an engine for an engine dyno run seems like quite a waste.