It is a rating system that assigns you points for winning based on the relative skills of the contestants. You also lose points if you lose.

So, if you are an ace, flying a Bristol against a newbie in a Nieuport, you should win. Thus when you win, you only get a few points (if any). If, however, the newbie wins, he gets A LOT of points. And you lose an equivalent amount.

It is described here

http://en.wikipedia.org/wiki/Elo_rating_system

http://www.littlegolem.net uses it for their games, including streetsoccer.

Like any rating system, it is open to abuse, but it does have a fairly good pedigree.