Ladder Leagues
The game's multiplayer system is organized into a number of leagues, each of which denotes a certain level of skill: Bronze, Silver, Gold, Platinum, Diamond, Master and Grandmaster, with Bronze being an entry-level league and Grandmaster being the best players on Battle.net. Within each league, players are ranked from 1 to 100 based on their accumulation of points against other players in the same league.
Point System
After each match, points are given or taken away from players based on whether they won or lost the match. Each match offers a certain amount of base points, but other factors like the bonus pool and favored matches can give extra points. The bonus pool is a pool of extra points that are rewarded as you win games. Favored matches depend on who you play; if you play an evenly matched opponent, you win fewer points, but if you beat a heavily favored opponent, you will win more points. The points influence your rank on the ladder within your league.
MMR
MMR, or "matchmaking rating" is a rating system assigned to each player that is separate from the points system. The MMR system is used to find out who you will be playing in each match. For example, if your MMR is high because you have won a high number of games, it will put you against opponents with increasing MMR until the system feels you are playing at a level where you are on an equal playing field. MMR's use is to place you in an appropriate rank based on your skill; since this system is based on skill over a number of matches, you will be placed more accurately the more you play, as it's nearly impossible to detect your skill after facing only a few opponents. To be promoted, your MMR will typically be around that of average players in the next league.
Placement
If you have never played on the ladder before, you will first be required to play five "placement matches." The game uses these five matches to attempt to figure out what league you should be placed in by using MMR as described above. As there are only five games, it may not be very accurate, but as you play, it will get evened out. At the start of every new season, if you have played on the ladder before, you will only be required to play one placement match to get placed into the appropriate league after the season starts.
Misconceptions
As Blizzard does not fully disclose how the ladder system works to prevent abuse, there are many misconceptions about how the ladder system works. One such idea is that in order to be placed in a new league, you must be ranked No. 1; likewise, some also believe that to be demoted you must be the lowest rank on your ladder. To the contrary, your position on the ladder does not influence your chances of promotion or demotion. This is left to MMR; if you start at Bronze level but quickly improve, you may skip Silver and Gold leagues if the system feels it is appropriate, without having to attain any rank on the ladders in between.
Another misconception is that in-game factors such as actions per minute, resource collection rates and other measurable statistics influence MMR. MMR is not influenced by how you play the game, but only the result. Your MMR will be determined only by your wins and losses and its comparison to your opponent's MMR.