Its width first then drop. The measurement is for each curtain so depending how much gather you like you want each curtain to be about the size of the space you want to cover. When measuring the drop don't forget to measure from the pole/rail to how far below the window you want them to hang :-)
The width is the actual size of the curtain, before you gather them. If you don't want them to look really skimped make sure the curtain is 2 x or 2.5 x the width of the window. So in the example you gave of a 46" wide curtain, your window would have to be less than 23". For the length, As pp said, measure from your pole to where you want the curtain to be. IMHO they usually look much better if they go to the floor. On occasion I've had the pole heightened or lowered to make curtains the correct length. Good luck.