The podcast explains the Elo rating system, a method of ranking players in competitive games. The system, developed by physicist Arpad Elo, assumes that players' abilities follow a bell curve, and their rating reflects the average of that curve. The podcast illustrates how the system uses formulas to predict game outcomes and update player ratings based on actual results. The system aims to ensure that players are matched against those of similar skill levels, and its popularity has spread beyond chess to other competitive games and online platforms.