S is a reference variable (you should write it in lower case).
S (or rather s) references an object that provides the method length().
You can only access the object referenced by s, if s is a really a reference to an object. If s is null (s==null), s does not reference an object and therefore, you can not call the method length(). If you try, you will get a NullPointerException.
When s references an object, you can call the length method on that object. In this case, it is a string object. A string object may exist without any characters (empty string, or "").
String s; // just a reference, initial value is null
s = ""; // s now references an empty string and is no longer null
new String(""); // create a new object with an empty string
In Java, you never really work with objects. You only work with references to objects, though in most cases, it appears as if you work with the object directly.
Keep in mind that the reference variable and the object are really to different things.