Ok so the brake arm is attached to the cam (the splined shaft poking out of the brake drum). That shaft has a slot on its face that points to the wear indicator marks on the drum.

As the brake shoes wear, you'll need to tighten the nut attaching the cable to the brake arm to keep the shoes close enough to the drum that you can keep braking. The cam will rotate in a counter-clockwise direction as the pads thin. As long as the slot on the cam points to a spot between the ends of the indicator, your brake shoes are fine. Those shoes will probably still be within limits long after the bike stops running.

If your rear brake seems soft, the drum may be clogged with dust. You can pull the rear wheel off and the cover of the drum pops right off the wheel hub. Clean the inner surface of the hub using brake cleaner, and rough it up using some steel wool or a wire wheel. You can also grind grooves in the brake shoes, from inside to out, to help push the brake dust toward the outside of the drum.

You need to slide the drum into the ridge on the right side of the swing arm when you reinstall the wheel. You'll see what I mean when you look at it. Make sure your cable is lubed and properly adjusted, raise the pedal height if needed, and go ride!