Just checked Sheldon Brown (again!) and here's a summary:
The longer the cage, the larger the capacity a rear mech can handle...
Capacity relates to the amount of chain slack the mech can take up, and is equal to the front range plus the rear range. Thus, if you have a 52/42/30 crank set (difference of 22 teeth) and a 12-28 (16 tooth difference) cluster, the total capacity required would theoretically be 38 teeth (22 front difference + 16 rear difference). Manufacturers specify this fairly conservatively. They must do so, because they have to assume that some of their deraillueurs will be sold to incompetent cyclists, who will abuse their drive trains by using the smallest chainwheel with the smaller rear sprockets.
Competent riders can considerably exceed the official rated capacity, since they will not misuse the granny ring by running it with the smaller rear sprockets, so it doesn't matter if the chain hangs slack in those gears. Rear derailleurs are also commonly designed for a particular maximum size of rear sprocket. If you exceed this size by too much, the jockey pulley may rub against the sprocket when using the lowest gear.
Rated maximum rear sprocket size, however, is also commonly much lower than what actually works. For instance, Shimano's models designated as "road" derailers are generally listed for a "maximum" sprocket of 27 teeth...because 27 teeth is the largest size that they make in a designated "road" cassette. However, in almost all cases, these derailleurs, even the short-cage models, will handle rear sprockets as large as 30 teeth in practice. (This somewhat depends on the design of the frame's derailleur hanger, so once in a while you will find a particular installation where you can't use a 30, but I've never seen one where a 28 wouldn't work.)
In MTB practise, if I have a normal 11-34 cassette and am using a single 32t chainring I would use a short cage derailleur... if I refitted my granny ring to create a 2x9 set up with 22/32t I'd use the same rear mech. The short cage mech is not spec'd for 34t bottom gear but it would work.
If I changed the middle ring to a 36 or 38t (greater capacity) I'd consider using a medium cage rear mech.
With a triple ring (22/32/42 or 44) set up I'd use a long cage with the 11-34 cassette.
If I were to change rear cassette to a closer ratio - ie a 12-28 - and had a standard 22/32/42 or 44 chainset I could run a short or medium cage. If I changed the rings to give a wider set of ratios - ie 22/34/48 - I'd use medium or long.
As a general rule of thumb run your chain - as with gear and brake cables - as short as possible ie the shortest cage you can! The chain and rear mech are always at their most stretched out when you engage biggest cogs front and rear, but when would anyone in their right mind ever do this - it bends the chain laterally and is a school-boy/girl error! So for example on my Surly I have an 11-34 cassette with a 22/34/48 chainset giving me a huge range of gears. Obv. this necessitates using a long cage mech* But I have cut chain short to stop it flapping about... therefore it would break the rear mech if I tried to engage big/big.
* IIRC around the early 2000s long cages got even longer. So an M760 rear mech's cage is longer than an M750.
Last edited by Dead Rats on Mon May 14, 2012 9:17 pm, edited 1 time in total.