From Rivals.com -- A five-star prospect is considered to be one of the nation's top 25-30 players, four star is a top 250-300 or so player, three-stars is a top 750 level player, two stars means the player is a mid-major prospect and one star means the player is not ranked.
That being said, the star system is one of the more subjective things out there. It's largely based on opinion and heresy. I know a couple of guys who actually submit star ratings to Rivals.com and while they do see a lot of film on the players they're ranking, they don't get to see everyone. Star ratings generally don't shift a whole lot once you get initially ranked, unless you go from being recruited by UAB to being recruited by Alabama. Tyrell Fenroy was a 3-star tailback that, if he had been pursued heavily by SEC teams, would have easily been a 4-star guy.
Those who know me know I don't care for recruiting rankings and projections and all that jazz. But if you want to get a grasp of your class, I've always felt the best measuring stick is to compare your guys to the schools they received offers from (note I said offers, not considering). Even better, if you can find out where they visited, that's a better representation of their worth (at least on the surface). A lot of these recruiting sites take the kids word for it that they did receive an offer. Sometimes, kids misinterpret interest or a phone call as an offer. I just recently did a story on a kid who thought he had an offer from Bama, but it turns out Nick Saban was just asking him how he would feel if Bama WOULD offer him. Of course, that didn't stop the Bama rivals.com site from saying he received an offer.
It's certainly not an exact science, not even close. It's a measurement, a projection. Just like No. 1 draft picks turn out to be busts and 6th round draft picks win Super Bowl MVPs. It's probably more accurate than it was, say 10 years ago, but still very much a crapshoot. I wish they wouldn't rank players or classes at all. If a player fills a need, who cares if Joe Blow from MyTeamRocks.com thinks he's the No. 3 drop-back passer in the North Atlantic states.