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It compares people of the same age or age category and assumes that IQ is normally distributed, that the average (mean) is 100 and that the standard deviation is something like 15 (IQ tests sometimes differ in their standard deviations).
Average IQ is 100 with standard deviation of 15. The fourth standard deviation of the mean of IQ is about 160. which is extremely rare; only 3 out of 100,00 people ar at this level. An IQ of 175 is found in only 3 out of 10 million people.