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It plots people on a "normal distribution" where the majority are in the middle, usually corresponding to a C/C+ and there are fewer people as you go out towards the ends (B's and A's, or D's and F's). Essentially, if people don't naturally fall on a normal distribution it artificially fits them onto one and shifts their grades up or down. It's based upon an assumption that the majority of people are and should be graded as mediocre and fewer should fall to either side. In practice though there is often such diversity in averages due to a host of different variables/conditinos, even among very large classes/schools/districts, that this approach tends to artificially inflate or deflate grades.

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Q: How a bell curve works in school grading?
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