I'll try to explain the Scoreboard Rank system here, hopefully it is not too statistics heavy   Feel free to ask questions and I'll revise as necessary!
 

Simple explanation

 

Individual game Rank Points are distributed based on whether your high score is above average or below average. You will get a positive number of points if you are above the average, and a negative amount if you are below. The number of points you get depends on how far above or below the average you are.

These all get added together, then added to your initial 2000 points to give you a total. If you are an average player your total Rank Points will be 2000, if you are better than average it will be higher, if you are below average it will be less than 2000.

 

Detailed explanation

 

Rank Points are first calculated by working out the average high score for every player for a game. So for a simple example, let's say 3 people have the following high scores:

Player 1: 8,000
Player 2: 3,000
Player 3: 1,000

The average (mean) of these scores is 4,000, the standard deviation is 3,605.

Rank points are calculated based on the number of standard deviations a score is away from the mean multiplied by 10. So for this game the players rank points will be:

Player 1: 11
Player 2: -3
Player 3: -8

In the overall leaderboard players start with a total of 2000 points, and individual games rank points are added together to that number, so based on the one example above, the current leaderboard would be:

Player 1: 2011
Player 2: 1997
Player 3: 1992

Average Rank Points for a player is the average for all of their individual Rank Points for each game.

FAQs:

Q: What happens when I get a new high score?
A: Since your new high score will change the average and the standard deviation, all Rank Points for everyone with a score for that game are recalculated.

Will there be a way to eventually eliminate previous attempts when you post an improved score? The way the system is currently set up you can bump your rank lower if you post a second (or third) higher score.

The rank points are based on your highest score, so if you post a higher one you'll get points based on the higher one.

Thanks for posting this, James. I knew we'd eventually get some questions on how exactly we're doing this.

nm... was reading the OP originally as "rank points" being consolidate across multiple games, rather than solely being per-game.

Thanks for the explanation. I'm enjoying the Scoreboard feature of the AVS much more than I thought I would.

I am a perfect example of how the system works. Over the past couple of years while testing the system, I have posted HUNDREDS of below average scores..most from playing for a minute or two, dying intentional and posting score to see if it works. Just because I have a lot of scores does not mean I am a "Great player". Now that everybody has better average scores, I have been bumped all the way down to the bottom.
Basically, the better all around player you are at ALL games, the higher the ranking you will get.

This should probably be emphasized more.  Submitting a score lower than your best does not hurt, so do it as much as you want!

Great idea with this rank system.  

But i'm a bit concerned if players are still motivated to upload their scores when they know that their rank points are going to be reduced.
In my eyes it would be better if every upload which reaches the Top 100 scores would be awarded with some points. Maybe with a percent system depending from the difference to the top score. Just my two cents.

This works nicely when the follow a bell curve.
But I am worried that the system might crash and burn when you have a high score that is just so much higher than all the others that will throw the standard deviation through the roof.

"But i'm a bit concerned if players are still motivated to upload their scores when they know that their rank points are going to be reduced."

That is a valid concern, but due to the dynamically changing averages and standard deviations, they could also be losing points by not posting! 

"But I am worried that the system might crash and burn when you have a high score that is just so much higher than all the others that will throw the standard deviation through the roof."

We'll see how it goes, but I think that if one person had such a massively better score than anyone else then the number of points would be warranted. Eventually someone would catch them and increase the average anyway  

Thanks james for the explanation.

this system is a bit off because it makes the assumption that someone not posting has an exactly average high score that does not effect rank either positively or negatively. the only way this would work is if the first time someone hooks up their AVS it would automatically post a score of 0 for all games without a submission. then it would make posting a score worthwhile as anything at least beating the standard deviation would net them 1 point

I don't know if there are any examples quite this dramatic on the NES but with a game like Gigawing on the dreamcast a small difference in skill can make for a 10X to 100X difference in scores. which would give the top scorer a ridiculously high number of points in this system and everyone else would be negative.

Bumping this for people who received their consoles recently and may not be aware of how things work.

Thanks!
 

Sorry for the thread resurrection, but I just got my AVS, I'm sharing the concern now about the major outliers skewing a board...  It kind of deters me from even wanting to post for some games.

​For example, Castlevania III and Castlevania, you've got a couple of guys who hit score cap (999,999), and then...  everybody else.  So say if I go out and post a score that trounces the bottom 70% of the leaderboard and made a solid 4th place, for example, but it's still nowhere near the score cap (say, 250 or even 300k)...  then I'm still guaranteed to pull negative points out of it?

The goal is to weed these games out and turn off rank points for the games that don't have a good competitive scoring system. 
That feature is still pending though, right now the only option is to have the games score tracking on or off.