These ratings are based on the Elo rating system designed for chess and other zero sum games.
There are two variables set for this implementation of the Elo system;
The starting elo is the initial rating that a new player gets when they enter the system. The K factor is the maximum rating change per game.
This system works by calculating the expected outcome of a contest based on the current rating of the two fighters and then comparing this to the actual outcome. Once this has been done, a number of points will be taken from the loser's rating and added to the winner's rating. The closer to the expected outcome, the fewer points that are allocated.
New points only enter the system when a new fighter has their first fight and they only leave the system when a fighter retires.
These ratings exclude fighters who have not fought within the last 18 months.
For more information on the elo rating system, you can read the Wikipedia page on the topic.
Please be aware that these ratings are calculated pound-for-pound, not per weight class. Fighters who recently switched weight class have ratings based primarily on having competed in their previous class and are not adjusted to their new class.