Gears multiply torque. Torque x RPM / 5252 = Horsepower.

The dyno measures torque. The gear, as well as multiplying torque, is dividing RPM by the same amount. So horsepower will remain the same no matter what the gear.

I've always assumed that since the dyno measures the torque and it knows the rpm of the tires it just takes the torque measurement and then reduced it to a 1:1 ratio.

Remember that even in direct drive the differential is multiplying torque and the height of the tires is dividing the torque. I'd be interested to hear from someone who knows for sure how the dyno is figuring it out.