The em unit actually refers to the square of the type size. In general,
it is simply a measure of size, and it can be referenced anywhere. For,
example you might choose to set the top margin to 1.5ems or an indent to 2 ems.
Let me quote from Jan Whites Book -- Graphic Design For the Electronic Age:
A square of the type size (or quad) was and continues to be a
proportion. In most typefaces the capital M is shaped more or less
like a square. That is why the square of the type size was nicknamed
an "M." To avoid visual confusion, the "M" is spelled out "em"...
[but this isn't quite the end of the story]
The simplest things tend to be complicated in typography. The
capital M does indeed resemble a square, but the em measures a
little larger than the M. It is the square of the type size: that
measurement must include the descenders of the lowercase letters. In
some faces the ascenders tower above the capital letters, so they,
too, must be included in the overall em's size.
Also from the appendices
Em the square of the type size: in a 10-point type size,
the em measures 10 points high and 10 points wide.
Greg Kostello
Pages Software Inc