NOTE: This explanation is current as of the patch going out late in the week of Sept 15th (wed, thurs or fri)
Summary:
The system guesses how good you are based on who you beat and who you lose to. It tries to make matches where it thinks you have a 50/50 chance of winning.
It knows pre-made teams are an advantage, so it gives you tougher opponents when you are in a pre-made team. We did fancy math to make the pre-made teams vs solo players matching fair. I even ran it by two math Ph.Ds and they said it made sense!