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Using multiple antennas at both sides of the wireless link is currently an active area of research because of the huge capacity and reliability gains promised by such systems. These gains are achieved almost for free where there is no extra bandwidth or transmit power is required. Such a system is called Multiple Input Multiple Output (MIMO) wireless system. In this paper, the behaviour of the MIMO Rayleigh channel’s eigenmodes and the power levels allocated to them by the water-filling algorithm with SNR and with the channel correlation will be analyzed. Capacity of the channel eigenmodes and total capacity of the channel will also be studied. It was found that, the strongest eigenmode of a channel matrix increases with correlation, while the other eigenmodes of the channel decrease. When the channel correlation approaches 1, the strongest eigenmode approaches the Mr* Mt, while the other eigenmodes approach zero. At low SNR, to get the maximum capacity of the channel, the transmitter allocates all transmit power to the strongest eigenmode, and hence the channel capacity will be improved by the channel correlation. At high SNR, the transmitter divides this power equally among the eigenmodes to maximize the channel capacity. In this paper, the channel parameters are considered perfectly known at both sides of the wireless link.