Time was when it was simply the diameter of the wheel (each wheel is stamped with its size)... now, however it's t"he measurement which begins from the bottom bracket (the cylindrical part of the lower frame in which the pedal cranks are affixed) and goes up to the top of the seat tube, the point at which the seat post enters the main frame. "
Additionally, the astute bike store will see if that measurement allows the prospective buyer to stand flat footed and straddle the frame... if not the inseam measurement of the buyer needs to be considered...