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They're chosen by the higher staff, and they look at specific things, mainly contributions, activity, behavior and that such. The staff has their own ways of doing stuff. Nick posted a blog about it, if I find it, I'll link you to it.
Edit: Or you can click on the link Nica ninja'd me with.
Edit #2: Click here for Nick's blog, it's a lot more in depth and I like reading it. =D
That's just what they want you to think. Really they grab like five of the most attractive people they can find and have they play musical chairs for 24 hours, the last one standing gets modded.