The line is marked with tags tied 47 feet 3 inches apart, with each tag having one additional knot. The chip is dropped overboard, and timed with a 28 second timer. The number of knots to go through the counters hands is the number of knots you are going.
47 feet 3 inches is calculated by dividing the earths diameter at the equator (21,600 miles) by 360 (degrees). 1 degree equals 60 miles. 1 minute of longitude at the equator equals 1 nautical mile. 21,600 miles divided by 360 (degrees), divided by 60 (minutes) = 1 mile.