My general philosophy is that the only balance that really matters in D&D is the interclass balance between the various PCs in a group. If the group as a whole is very powerful and flexible, the DM can simply up the challenge level and complexity of the encounters. If it's weak and inflexible, the DM can lower the challenge level and complexity. Serious issues arise when the party is composed of some members which are extremely powerful and others which are extremely weak, leading to a situation where the DM has two choices: either make the game too easy for the strong members, or too hard for the weak members. Neither is desirable. Thus, this system is created for the following purposes:
1) To provide a ranking system so that DMs know roughly the power of the PC classes in their group.
2) To provide players with knowledge of where their group stands, power wise, so that they can better build characters that fit with their group.
3) To help DMs who plan to use house rules to balance games by showing them where the classes stand before applying said house rules(How many times have we seen DMs pumping up Sorcerers or weakening Monks?).
4) To help DMs judge what should be allowed and what shouldn't in their games. It may sound cheesy when the Fighter player wants to be a Half Minotaur Water Orc, but if the rest of his party is Druid, Cloistered Cleric, Archivist, and Artificer, then maybe you should allow that to balance things out. However, if the player is asking to be allowed to be a Venerable White Dragonspawn Dragonwrought Kobold Sorcerer and the rest of the party is a Monk, a Fighter, and a Rogue, maybe you shouldn't let that fly.
5) To help homebrewers judge the power and balance of their new classes. Pick a Tier you think your class should be in, and when you've made your class compare it to the rest of the Tier. Generally, I like Tier 3 as a balance point, but I know many people prefer Tier 4. If it's stronger than Tier 1, you definitely blew it.
This post is NOT intended to state which class is "best" or "sucks". It is only a measure of the power and versatility of classes for balance purposes.
Psionic classes are mostly absent simply because I don't have enough experience with them. Other absent classes are generally missing because I don't know them well enough to comment, though if I've heard a lot about them they're listed in italics. Note that "useless" here means "the class isn't particularly useful for dealing with situation X" not "it's totally impossible with enough splat books to make a build that involves that class deal with situation X." "Capable of doing one thing" means that any given build does one thing, not that the class itself is incapable of being built in different ways. Also, "encounters" here refers to appropriate encounters… obviously, anyone can solve an encounter with purely mechanical abilities if they're level 20 and it's CR 1.
Also note that with enough optimization, it's generally possible to go up a tier in terms of tier descriptions, and if played poorly you can easily drop a few tiers, but this is a general averaging, assuming that everyone in the party is playing with roughly the same skill and optimization level. As a rule, parties function best when everyone in the party is within 2 Tiers of each other(so a party that's all Tier 2-4 is generally fine, and so is a party that's all Tier 3-5, but a party that has Tier 1 and Tier 5s in it may have issues).
As a further note, some classes have specific variants or options to them that drastically change their abilities. These classes are noted on multiple tiers. If a variant is not mentioned, it's in the same Tier as the standard class(for example, the Cloistered Cleric is not mentioned because it's T1 like the Cleric, and similarly for the Battle Sorcerer and the Wilderness Rogue).
Now, obviously these rankings only apply when mechanical abilities are being used… in a more social oriented game where talking is the main way of solving things(without using diplomacy checks), any character can shine. However, when the mechanical abilities of the classes in question are being used, it's a bad idea to have parties with more than two tiers of difference.
It is interesting to note the disparity between the core classes… one of the reasons core has so many problems. If two players want to play a nature oriented shape shifter and a general sword weilder, you're stuck with two very different tiered guys in the party(Fighter and Druid). Outside of core, it's possible to do it while staying on close Tiers… Wild Shape Variant Ranger and Warblade, for example.
Note that a few classes are right on the border line between tiers. Duskblade is very low in Tier 3, and Hexblade is low in Tier 4. Fighter is high in Tier 5, and CW Samurai is high in Tier 6(obviously, since it's pretty much strictly better than the same tier Warrior). Classes with blue are on the high side of their Tier and can easily move up. Classes with red are on the low side of their Tier and can easily move down.
Capable of doing absolutely everything, often better than classes that specialize in that thing. Often capable of solving encounters with a single mechanical ability and little thought from the player. Has world changing powers at high levels. These guys, if played with skill, can easily break a campaign and can be very hard to challenge without extreme DM fiat or plenty of house rules, especially if Tier 3s and below are in the party.
Has as much raw power as the Tier 1 classes, but can't pull off nearly as many tricks, and while the class itself is capable of anything, no one build can actually do nearly as much as the Tier 1 classes. Still potentially campaign smashers by using the right abilities, but at the same time are more predictable and can't always have the right tool for the job. If the Tier 1 classes are countries with 10,000 nuclear weapons in their arsenal, these guys are countries with 10 nukes. Still dangerous and easily world shattering, but not in quite so many ways. Note that the Tier 2 classes are often less flexible than Tier 3 classes… it's just that their incredible potential power overwhelms their lack in flexibility.
Capable of doing one thing quite well, while still being useful when that one thing is inappropriate, or capable of doing all things, but not as well as classes that specialize in that area. Occasionally has a mechanical ability that can solve an encounter, but this is relatively rare and easy to deal with. Can be game breaking only with specific intent to do so. Challenging such a character takes some thought from the DM, but isn't too difficult. Will outshine any Tier 5s in the party much of the time.
Capable of doing one thing quite well, but often useless when encounters require other areas of expertise, or capable of doing many things to a reasonable degree of competence without truly shining. Rarely has any abilities that can outright handle an encounter unless that encounter plays directly to the class's main strength. DMs may sometimes need to work to make sure Tier 4s can contribute to an encounter, as their abilities may sometimes leave them useless. Won't outshine anyone except Tier 6s except in specific circumstances that play to their strengths. Cannot compete effectively with Tier 1s that are played well.
Capable of doing only one thing, and not necessarily all that well, or so unfocused that they have trouble mastering anything, and in many types of encounters the character cannot contribute. In some cases, can do one thing very well, but that one thing is very often not needed. Has trouble shining in any encounter unless the encounter matches their strengths. DMs may have to work to avoid the player feeling that their character is worthless unless the entire party is Tier 4 and below. Characters in this tier will often feel like one trick ponies if they do well, or just feel like they have no tricks at all if they build the class poorly.
Not even capable of shining in their own area of expertise. DMs will need to work hard to make encounters that this sort of character can contribute in with their mechanical abilities. Will often feel worthless unless the character is seriously powergamed beyond belief, and even then won't be terribly impressive. Needs to fight enemies of lower than normal CR. Class is often completely unsynergized or with almost no abilities of merit. Avoid allowing PCs to play these characters.
And then there's the Truenamer, which is just broken(as in, the class was improperly made and doesn't function appropriately). Highly optimized(to the point of being able to spam their abilities) a Truenamer would be around Tier 4, but with lower optimization it rapidly drops to Tier 6.