How Define Projection works
This tool supports coordinate transformation using either a spherical coordinate system with angular units (such as Geographic) or a planar coordinate system with linear units. Most Coverage tools, among them Build and Clean, assume you have a planar, two dimensional dataset. If your dataset is in a geographic coordinate system in decimal degrees (DD, angular units), use the Project tool to project your dataset to any suitable projected coordinate system in linear units (meters or feet).
Creating a Projection File
A coverage can maintain an explicit definition of the coordinate system in which it is stored. If not defined, the projection will be listed as Unknown. Projection information is stored in the dataset's PRJ file.
The best way to create a PRJ file is to open a simple text editor program (Notepad, WordPad, TextPad, vi, and so forth), enter the projection definition, and save the file with a PRJ extension (*.prj). The projection definition must include all the parameters you want to set and the subcommand keywords. For example, if you want to set the units, you would type: "units meters", not just meters. Also, each parameter must be entered on a separate line.
If the Input Coverage is in geographic coordinates using decimal degrees (DD), and based on the NAD27 datum, the following would define the parameters:
PROJECTION GEOGRAPHIC UNITS DD DATUM NAD27
Examples of parameters for some common projections: