It’s fairly arbitrary in many respects, and is very subject to subjective opinions of the schools. MIT is one of the top schools, but that doesn’t mean that MIT is the best choice for everyone. There are some schools that are significantly better for many fields.
Harvard, Yale, Princeton, Stanford, and MIT (or HYPSM) are often considered “the top” schools. However, this often gets taken drastically out of context. There are MANY other good schools. In addition to HYPSM, there’s UChicago, Berkeley, UIUC, CalTech, the rest of the Ivy’s (Cornell, Brown, Dartmouth, Columbia) that are not always considered “top” in the same sense as HYPSM, and many others. The Ivy League has some mythical presence in our culture, but the reality is that there are plenty of schools on an equal playing field, and some that are significantly better than any of the Ivy League schools.
UIUC is a school that most don’t consider to be a “top school,” and yet for my major (physics), it’s ranked number 9 in the country (by US News). The only Ivy’s that rank higher than UIUC for physics are Harvard, Princeton, and Cornell. Similar examples can be made with numerous other fields where UIUC ranks as one of the top schools for a field yet is not considered to be a “top school.” Examples include accounting (ranked #2 in the country), engineering (tied for #6 with three other schools), computer science (#5, with four schools tied for #1), and other specific areas of engineering where they rank #1-#5 in the country. It may just be me, but it seems odd that a school can be considered at the top in several rather large undergraduate majors, and yet not be considered a top school. A lot of people don’t consider Berkeley to be a top school, and yet it’s ranked near the top in just about any comparison.
A lot of people have mentioned acceptance rates as some kind of indicator of “ranking,” but I really don’t buy that. Those statistics are inflated and fudged like crazy. I’ve received email from four different Ivy League institutions inviting me to apply, and I know a bunch of other people that have received the same emails. I think I’d be a fairly competitive applicant (I’m a CC transfer student), but plenty of people that have gotten these emails are in no sense a competitive applicant for these schools. But they’re invited to apply even though they don’t have a shot, and then get rejected. In turn, their “selectivity” ranking goes up because they’ve invited unqualified applicants to apply.
tl;dr - People spend far too much time worrying about the whole top-tier, second-tier, third-tier thing, and don’t often consider the fact that these rankings are often meaningless in the grand scheme of things.