These rankings are inspired by the lineal titles in which the only way to win the title is to beat the current title holder.
If a lower ranked fighter beats a higher ranked fighter, they move one spot above them. If the higher ranked fighter wins, the rankings remain unchanged.
If a fight results in a draw, the lower ranked fighter is moved up to the spot immediately below the higher ranked fighter.
These rankings are not weight class specific and therefore it is effectively impossible to reach the top of the rankings without competing at heavyweight in the UFC.
To prevent people retiring as the top ranked fighter and therefore never being replaced, fighters are excluded from the rankings if they have not fought in 18 months. If they return to competition however, they regain their positition in the rankings from before they took time off.
For more information on lineal championships, you can read the Wikipedia page on the topic.
Please be aware that these ratings are calculated pound-for-pound, not per weight class. Fighters who recently switched weight class have ratings based primarily on having competed in their previous class and are not adjusted to their new class.