In this paper we derive the capacity of Pulse Position Modulation (PPM) on a general soft output, memoryless channel, and evaluate the capacity formula for a variety of optical channel models, including AWGN, Webb, and Webb plus Gaussian distributions. Unlike a typical RF link, the optical channel has correlated signal and noise, complicating the statistical model to the point that capacity and code performance cannot be summarized by a single SNR parameter. Nevertheless, we are able to define a small set of fundamental parameters (two for AWGN and three for Webb) which are sufficient to determine the capacity. Numerical results indicate that over a wide range of operating points, a single fundamental parameter dominates the capacity calculation. A second contribution of the paper is the description of the relationship between the fundamental parameters and a multitude of physical parameters that describe the laser, channel, and detector. Using this relationship and the gradient of capacity, the sensitivity of capacity with respect to each fundamental and physical parameter is derived. This enables engineers to focus laser and detector development efforts in areas that will result in the largest capacity increases.