Contrary to what you might be picturing, there isn't a roomful of young guys sitting around playing video games and taking notes. As a self-regulatory agency, the ESRB relies heavily on what the game developers say is in the game.
When submitting a game for a rating, game companies fill out a questionnaire about the game's content. In it, they have to be clear about any violence, sexuality, strong language or other content specified by the ESRB. They also have to submit a video recording showing all of the content they called out on the questionnaire.
The questionnaire and the video get reviewed by at least three members of the ESRB staff. Almost all of the ESRB staff has a background working with children, either through education, work history or having children of their own.
In some cases the games actually get played to verify the information submitted by the game company, but not always. It would take too long to have three different people play each game (some games take 50 hours to complete), and even if they did there's no way to be sure they'd catch everything. So they only play the games when necessary.
The entire review process can involve several rounds of deliberation among trained reviewers, and even communication with the game company. What results from this process is the rating you see on the game's packaging.
While the ESRB assigns the ratings and makes sure they're displayed clearly, there's not much they can do about enforcing who buys the games. That's up to the retailers, who enforce their own age restrictions by asking for ID at the register, and of course, parents who monitor what their kids are playing. Fortunately, almost all major retailers who sell video games work with the ESRB to help enforce the age minimums. There's even an ESRB Retail Council, which is an organization formed to help make sure retailers and the ESRB are all on the same page when it comes to understanding ratings.
One recurring issue with video games ratings is violence. On the next page, we'll look at whether video violence increases aggression in children.