*sigh* Okay, to backup WuTangDude (who obviously knows what he's talking about) and to add something to the definition of Tiers, I will elaborate on the subject of Tiers.
WuTangDude was right about the Tiers being based on tournament-winning characters. That's because the best characters in ALL fighting games are the ones that either win, or end up in the finals of the tournaments. You'll have to realize that NO FIGHTING GAME IS PERFECTLY BALANCED. There are some characters that are better than others. I will explain two things about tiers:
1. Tiers rank the characters based not only on tournament-winnings, but in general how good they are.
The first thing I have to get out of the way is that Tiers are under the assumption that the people using the characters are of the EXACT same skill level. Let's use an example from the tournament player, Ken. Ken is good with Marth, but he is also equally good with Pikachu. He's usually won the tournaments with Marth.
Now let's say a doppleganger of Ken (or Kenganger, if you will) appeared and challenged Ken. This doppleganger had the exact same skill level as Ken and chose Pikachu. The real Ken chose Marth. The real Ken will almost always win against the Kenganger, because, simply put, Marth is a better character than Pikachu. The reason why I put almost always is because there might be a small amount of luck involved, especially in a close match. This is why so many things had to be stripped out of Melee for tournament play. The tournament organizers had to remove as much luck as they possibly could, for fair, even matches. This was so that tournament matches wouldn't be won by chance, as in what item you got or what stage gave Fox his advantage.
2. Tiers can determine the balance of the game.
This applies not only to Smash, but to other fighting games as well. By balance, I mean that the characters have an even (not perfectly even) playing ground and that the lower-tiered characters could stand some chance against the higher-tiered characters. Now the reason why Melee victors were mainly either Fox, Marth, Sheik or Falco was because Melee wasn't a balanced game. It was broken. The top-tiered characters were so strong and so powerful that anything lower-tiered didn't stand a chance. There are other games with tiers, in which the tiers proved how balanced or unbalanced the game was. Let's look at some other fighting games:
Street Fighter 3: Third Strike
Even though it had the Parrying system to bridge the gap between pros and amateurs, it was still highly unbalanced. The only characters that won tournaments were the Top-tiers: Ken, Chun-Li, Yun and Makoto. Although some notable bottom-tiers got somewhere in the tournaments (most notably Q), they were never in the finals because the characters simply weren't good enough.
Marvel vs Capcom 2
This game is even more unbalanced than SF3. With 56 characters and plenty of glitches and oversights on the designers' parts, Marvel vs Capcom has become a REALLY unbalanced fighting game, yet its still good enough for tournaments. The god-tiers are the tournament winners, along with some high-tiers. In this game, you choose teams of 3 as your fighting team. Winning means that 2 members of your team are gods and 1 is high-tier. For example, Cable, Sentinel and Captain Commando is a God/God/High team that can actually win tournaments. Anything lower than a High will not even get anywhere in MvC2 tourneys.
Street Fighter 2: Hyper Fighting
Ah, one of the most balanced fighting games of its time. 12 characters, each with their own special moves. The reason why this game was so balanced, even though there were tiers, was that each character had methods of defeating another person's moves. Some characters had anti-projectile moves. Some characters had anti-air moves. Some characters had fast go-across-the-screen moves to put them on the offensive. It wasn't PERFECTLY balanced, but because each character could stand some chance against eachother, the tournament winners were usually varied. Some low-tiers knocked high-tiers out of the competition, while some mid-tiers won tournaments.
That's all I'm writing for today. I have to go to school tomorrow.
