Based on principal state of polarization (PSP) theory, an analytical expression of the degree of polarization (DOP) of optical signal is obtained. The effects of various factors on signal DOP degradation are presented by numerical simulation for 40 Gb/s optical transmission system. The results show that DOP technique is able to effectively monitor and control polarization mode dispersion (PMD) compensation of 40 Gb/s optical transmission system with the different group delay (DGD) less than 37.5 ps. Furthermore, an optimal pulse width is found with regard to maximizing the tolerable DGD range,which is 1/e-intensity half width equal to 0.45 bit period (11.25 ps).