It counts for 12.5% of the total (4th in weight out of 7 major ranking factors).
“Graduation and retention rates” count more (22.5%), but selectivity seems to telegraph into these rates.
“Undergraduate academic reputation” also counts for more (22.5%), but again, selectivity may be influencing the guidance counselor ratings.
If you ranked colleges solely by average test scores (the biggest part of “selectivity” and 8.125% of the USNWR ranking), you’d wind up with a set of top N colleges that looks very similar to the USNWR top N (often in close to the same order).
Is that a good way to rank colleges? The USNWR ranking isn’t too far from a claim that America’s N best colleges are, approximately, the ones where its N x ~1000 best (or highest scoring) students go. But just ranking by test scores alone wouldn’t sell. So they toss up a lot of other voodoo to arrive at a pretty similar result. Which may or may not be telling us what the “best” colleges really are.