With bigger diameter wheels, the speedometer indicates a couple of miles too few (you drive faster than you think)... Smaller wheels do exact the reverse.
Let me show a number work:
Situation 1
tires: 205/55/16 (205 mm/ 55% of 205/ 16 inch) The height of the 'rubber' is:
205/25.4=8.0709 inch --> 0.55 x 8.0709 x 2 (twice height of tire edge) = 8.8780 inch.
The totall height of wheel is 8.8780 + 16 = 24.8780 (inch)
Situation 2
tires: 245/40/18 (245 mm/ 40% of 245/ 18 inch) The height of the 'rubber' is:
245/25.4=9.6457 inch --> 0.40 x 9.6457 x 2 (twice height of tire edge) = 7.7165 inch.
The totall height of wheel is 7.7165 + 18 = 25.7165 (inch)
In 'situation 2' the height is 'situation 1' + 3.37% (%= 25.7165 / 24.8780 = 1.0337)
You know now that if the wheel turns around once in 1 second, you make more distance (+ 3.37%) The speedometer shows e.g. 50 miles/h, but actually you drive faster: 50 + 3.37% = 51.685 miles/h.
When the total height (in new situation) of the wheel becomes smaller, the actually speed is less miles/h then shown on the speedo.......