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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).
The average IQ of the population as a whole is, by definition, 100. IQs range from 0 to above 200, and among children, to above 250. However, about 50% of the population have IQs between 89 and 111, and about 80% of the population have IQs ranging between 80 and 120, with 10% lying below 80, and 10% falling above 120.