Rear Derailleur

"Dropouts" is the name for the slot where your rear axle goes in. Picture your rear wheel, and where you slide the axle into the frame and bolt it down tight. Those are the dropouts. Having horizontal dropouts allows you some space to slide the rear axle forward or back enough to keep the right tension on the chain. Vertical dropouts, which are more standard on newer bikes, do not allow for this type of adjustment as easily.