[DrBob]

If your speedo sensor is on a drive pully, or transmission pully, the the size of the rear tire will indeed have an effect on its accuracy. The sensor simply counts the rotations of the pullies, and the speedo convers that number of rotations per second into the distance traveled per second, and thus speed/ miles covered.
If you change the profile of the rear tires, making it shorter or taller, the distance covered per pulley revolution changes, making the speedo inaccurate. If, for example, your stock wheel was 16-inches, and the tire added another 8 inches of height (four top, four bottom) then the diameter of the tire is 24 inches, and the tire is 75.4 inches around. So for every pulley rotation the speedo thinks you covered 75.4 inches. If you swap to a slightly lower profile tire, which adds only 3.5 inches top and bottom, the tire is now only 23 inches tall, and for each pulley rotation the tire only covers 72.2 inches, not the 75.4 inches the speedo thinks you did. So just that slight change in tire height just caused a 5% error in the speedo.

So to correct the error you can adjust the tire size, or find a speedometer shop that will calibrate the speedo to read correctly with the existing tire size.