It’s usually based off of tournament results and how that particular character fairs against one another. In reality, though, it all just comes down to skill and having a bit of luck on your side.
EDIT: Annnd, as of now, the good doctor has just plummeted down two whole spots in a matter of three whole days. (F**k!)
Oh well. At least he’s still better rated than the Wii Fit Trainer.
(Also, how is the Wii Fit Trainer rated so low? Stupid tier list.)