A ranking that counted wins alone would reward the team with the easiest schedule. Systems therefore adjust for opponent strength, and the method of adjustment defines what the ranking means.
The problem with counting results
Teams do not play identical schedules. A side facing weaker opposition accumulates wins more easily than one facing the strongest teams regularly.
Without adjustment, the ranking would reward scheduling choices rather than quality, and teams would have an incentive to arrange easier fixtures.
Since fixtures are partly within a federation's control, that incentive would distort the calendar and reduce the number of competitive matches played.
Rating-based approaches
One family of systems assigns each team a rating and updates it after every match according to the result and the difference between the two ratings.
Beating a higher-rated opponent produces a large gain, while beating a much lower-rated one produces almost none, and losing to a weaker side costs heavily.
The system is self-correcting. A team rated too highly loses points steadily until its rating matches its results, without any external intervention.
Points-table approaches
An alternative awards fixed points per result, multiplied by factors for the opponent's rank, the importance of the match and sometimes the confederation involved.
This is more transparent, since a competitor can calculate exactly what a given result is worth before playing, and it is easier to publish and audit.
It is also cruder, because the multipliers are chosen by administrators rather than derived from how results actually distribute.
What margin adds and costs
Some systems include margin of victory, on the reasoning that a narrow win and a heavy one carry different information about relative strength.
Including margin makes the rating more responsive, but it also rewards running up scores in matches already decided, which distorts behaviour.
Most systems therefore either exclude margin or cap its influence, accepting slightly slower convergence in exchange for cleaner incentives.
What these rankings cannot do
Any system based on results struggles when teams from different regions rarely meet, because there is little evidence linking the two groups.
Ratings within an isolated region can drift relative to the rest of the world, and the error only becomes visible when a tournament forces the comparison.
This is why rankings are most reliable in sports with dense international schedules and least reliable exactly where they are most needed for seeding.
