The voltage drop is used to calculate the battery's internal resistance. This is typically done by applying a constant current load to the battery and measuring the voltage across the battery before and after the load is applied. The internal resistance can then be calculated using Ohm's law (V=IR).
Load current flows from the battery (under test) through the meter leads en route to the load resistance (inside the meter) so the value of ‘internal resistance’ obtained will be the sum of lead resistance and battery internal resistance.
The internal resistance of a battery cannot be measured with a simple ohmmeter. The measurement requires a special device or voltmeter with a known load. Overall, the internal resistance of a battery is an important and useful characteristic.
The most common method for determining a battery’s internal resistance is to connect it to a circuit with a resistor, measure voltage through the battery, calculate current, measure voltage through the resistor, find the voltage drop, and use Kirchhoff laws to determine the remaining resistance, which is internal resistance.
The internal resistance cannot accurately determine the battery capacity. There are also such testers, but you should not blindly trust their readings, since they do not measure the real capacity, but only calculate it. Not every battery is capable of delivering high starting current with low internal resistance.
The value of total circuit resistance may be easily calculated by Ohm’s law and the deduction of lead resistance plus battery internal resistance provides a measure of the additional inserted resistance.