The MPAA's Rating Board determines each rating. They consist of 10 to 13 members, assigned by the MPAA Chairman.
The Board watches every movie submitted for a rating. They appraise the movie based on content which parents might object to, including sex, violence, harsh language and drug use.
At the end of their discussion, the Board assigns the movie a rating based on their conclusions. The filmmaker may re-edit the film and submit it again if he doesn't like the rating.
The filmmaker may also appeal the rating to the MPAA Appeals Board, separate from the Rating Board, which may decide to overturn the rating.
The ratings system has engendered a great deal of controversy over the years. The Ratings Board members are not publicly known, for example, and their decisions are often influenced by studio concerns.