PGStaff will have to answer that more specifically, but I think it is a round table discussion based on player ratings (on their 1-10 scale) and scouting reports from events including showcases, WWBA and BCS tourneys, USA Baseball's events like the JO's and Tournament of Stars, etc.
While a lot of consideration is given to objective data such as a pitcher's MPH or a runner's 60 speed, I think anyone would tell you that these ratings and rankings are highly subjective. Ultimately you have to go back and compare the rankings to things like how they end up in the draft (a reflection of their evaluation by the 30 MLB scouting staffs) to make sure the methodology was sound and at this point, I think PG has been in the business long enough to have honed their system pretty well.
Still, in many cases it comes down to splitting hairs and you can't put too fine a point on what your ranking might come out as.
I have also seen cases where "late bloomers" shoot up the rankings when they haven't been seen for a while, and then all of a sudden someone gets a look at their new performance level.