Originally Posted by Wikipedia

A tier list is a ranking of each character's metagame, based on tournament settings. It is an indicator of how each character is expected to perform, under tournament settings, in relation to the rest of the cast. Thus, tiers measure the potential of each character based on all currently known techniques and strategies that have been shown to be useful in tournaments. Tier lists are common in fighting games as well as many other competitive games involving a large selection of characters.

The tier list does not say anything about any single matchup. For example, if two players are equally matched in skill, and one uses Fox and the other uses Pichu, the tier list alone can not be used to predict the outcome of the match accurately. This is because the tier list looks at a character's overall potential and effectiveness, and individual matchups can be soft or hard counters that affect but do not entirely determine a character's ranking. For instance, in the aforementioned example, if the Fox vs. Pichu matchup was dramatically tipped in Pichu's favor, but Pichu suffered from poor matchups against every other character in the game, it would mean that Pichu beats Fox, but Pichu is still worse than Fox.