The Shimano rear derailleur is made to service either a seven- or eight-speed cassette -- the toothed metal cluster of rings found off the rear wheel. By adjusting the derailleur, the rider gets to shift effortlessly between these toothed gears. When adjusting the Shimano seven-speed derailleur, the rear derailleur is done off the front shifter and back end of the derailleur itself.
Begin pedaling and riding the bicycle and place your right hand on the shifter pod on the handlebars. Place the thumb on the inside thumb lever and your forefinger on the outer index lever. Pedal and ride and go through the shifting by pushing the thumb lever or clicking the index shifter. Notice any loose gears, gears not shifting or stiffness on the shifts.
Stop riding and locate the barrel adjustment on the edge of the shifter pod where the cable connects to the shifter. Turn the barrel one quarter-turn to the left to loosen the shifting on the seven-speed derailleur. Turn one quarter-turn to the right to tighten the shifting.
Begin pedaling the bicycle again after making the adjustments. Feel for the stiffness or missed shifts. If present, proceed to Step 4.
Get off the bike and locate the rear derailleur's barrel adjustment. This is on the back end of the seven-speed derailleur and looks like the shifter pod barrel.
Turn the barrel one quarter-turn to the right to tighten up the shifting. Pedal the bicycle and check for the loose or missed shifts. Continue to make quarter-turn adjustments until the derailleur is shifting smoothly through the seven gears.