In Transformers, Position Embeddings (PEs) significantly influence Length Generalization (LG) performance, yet their fundamental role remains unclear. In this work, we investigate the limitations and capabilities of PEs in achieving LG. We theoretically analyze PEs in Position-Only Linear Attentions (POLAs), introducing Linear Representation Complexity (LRC) to characterize when PEs enable LG. Our analysis shows that PEs do not expand computational capabilities but structure learned computations across positions. Extending to practical Transformers, we propose Sequential Representation Complexity (SRC) and conjecture that LG is possible if and only if SRC remains invariant across scales. We support this hypothesis with empirical evidence in various reasoning tasks. To enhance LG, we introduce Scale Hint, allowing flexible instance scaling, and a Learning-Based Position Embedding framework that automatically learns positional relations. Our work provides theoretical insights and practical strategies for improving LG in Transformers.