The ELO rating system in chess is a means of comparing the relative strengths of chess players, devised by Professor Arpad Elo. Players gain or lose rating points depending on the ELO rating of their opponents. If a player wins a game of chess in a rated tournament, they gain a number of rating points that increases in proportion to the difference between their rating and their opponent's rating.
The usefulness of the system lies in the conversion of these ratings into winning or losing probabilities in a tournament situation, which allows tournaments to be sectioned and qualifying thresholds to be set. Also, chess titles are awarded on the basis of reaching certain ELO rating levels.
The central statistical assumption of the ELO system is that any player's tournament performances, spread over a long enough career, will follow a normal distribution. A detailed description of the formulae and theory behind the system can be found at http://home.clear.net.nz/pages/petanque/ratings/descript.htm