Watson describes Jabez Wilson as having fiery red hair. Arthur Conan Doyle took pains to make it plausible that Wilson would not have heard about the so-called Red-Headed League before his new assistant told him about it and showed him the advertising of a vacancy to be filled. Many people might have mentioned a newspaper account of the formation of this league to Wilson because of his unusually brilliant red hair, so Doyle established that Wilson was in China at the time and could not have heard about the league in that distant place. Doyle uses Holmes to deduce that Wilson had spent some years in China rather than having Wilson volunteer that information. It is more interesting to have that information to come out in the form of one of the great detective's surprising deductions. Holmes makes his deduction mainly from the fact that Wilson has a tattoo on his wrist which could only have been done in China. Wilson also wears a Chinese coin on his watch-chain. Neither of these deductions is especially remarkable; their main purpose is to establish that Wilson was out of the country when the fictitious American millionaire founded the fictitious Red-Headed League in London. John Clay's purpose in planting an ad in the newspaper was, of course, to get Wilson out of his shop every day so that Clay and his partner could work on their tunnel undetected. It was the unusual texture and hue of Wilson's red hair that gave Clay the idea of the Red-Headed League. There were a great many applicants for the advertised, but Wilson was a shoo-in for the job.

Sherlock Holmes uses his famous "method" of picking up on tiny clues, usually of appearance, to make far-reaching correct deductions about people.  With Jabez Wilson, Holmes is able to make a very clear picture of the pawnbroker's life before the man ever said a word. 

When Watson first sees Mr. Wilson, he is unable to draw many conclusions about the man or his life.

I did not gain very much, however, by my inspection. Our visitor bore every mark of being an average commonplace British tradesman, obese, pompous, and slow. He wore rather baggy grey shepherd's check trousers, a not over-clean black frock-coat, unbuttoned in the front, and a drab waistcoat with a heavy brassy Albert chain, and a square pierced bit of metal dangling down as an ornament. A frayed top-hat and a faded brown overcoat with a wrinkled velvet collar lay upon a chair beside him. Altogether, look as I would, there was nothing remarkable about the man save his blazing red head, and the expression of extreme chagrin and discontent upon his features.

But Holmes, presented with the same information, finds plenty of fodder for his deductions.

Sherlock Holmes' quick eye took in my occupation, and he shook his head with a smile as he noticed my questioning glances. “Beyond the obvious facts that he has at some time done manual labour, that he takes snuff, that he is a Freemason, that he has been in China, and that he has done a considerable amount of writing lately, I can deduce nothing else.”

Jabez Wilson is flabberghasted, and he cannot figure out how Holmes has discovered all of these details about him.  But, upon explanation, it becomes perfectly clear how Holmes knows all these things.

The fish that you have tattooed immediately above your right wrist could only have been done in China. I have made a small study of tattoo marks and have even contributed to the literature of the subject. That trick of staining the fishes' scales of a delicate pink is quite peculiar to China. When, in addition, I see a Chinese coin hanging from your watch-chain, the matter becomes even more simple.”

The reaction of Jabez Wilson is rather comic, for he has the effrontery to say that Holmes's deduction wasn't clever.  The fact that it could be explained took the mystery out of the trick.