At each step of the algorithm the total number of OTUs declines by one and the algorithm is finished when the final two OTUs are clustered. In general these methods only permit bifurcating trees. The branch length is taken to be the average distance between the OTUs. Then again, the two taxa or OTUs with the smallest distances are clustered together. This process continues until all OTUs have been clustered together.
Some data come naturally in the form of a distance between species.
For other forms of data, the distances are calculated from sequences of characters. The reduction of this data from sequences to a single number obviously leads to a loss of information. But you can gain a great deal from the speed and simplicity of these distance methods. This is generally not a valid assumption. Hence corrections for distances and accurate measures of the distance become very important.