Man, we had an entire semester of this in Aircraft Performance....

Basically, you have a curve that determines how much power is available (PA) based on settings and what engine you have. Secondly you have a curve that shows the power required (PR) to maintain altitude. If you chart both on the same graph, you can measure climb performance. The larger the distance between the curves, the better your performance. PA decreases with altitude, and PR increases with altitude. So at some altitude, the graphs will meet, and that is your absolute ceiling.