Relmstein of The Many Relms of Relmstein has posted an updated version of a post he originally wrote in 2006 that is one of the most concise and clear explanation of how team ratings work and how people exploit them, including how Blizzard's planned arena rule changes will help stop these exploits.
The team rating explanation itself is good for number crunchers and those who like to know how things work, and I found it fun to see. Of course, It comes down to a pretty straightforward statement that we already know: When two teams meet, the team with a higher rating will lose more points if they lose, and gain fewer points if they win, and vice versa.
The other part of the equation is explaining team smurfing (aka win trading), in which high ranked arena team members temporarily join a lower ranked team and inflate it upwards, then join their original team. At that point, they queue up both teams at a low population hour, and accept only the games where both of their teams face each other. Then, they cause the smurf team (full of friends or alts on second accounts) to throw the game, giving them a free win and a bump to their rating.
The new changes should help this out, explains Relmstein. Firstly, it will likely be nearly impossible to have 1500 rating placeholders be a part of their 2200 rated smurf team, being that if you're 150 personal rating below your team rating, your team will get matched based on your personal rating rather than team rating. Secondly, since you will now lose rating for dodging out of a match, these exploiters won't be able to avoid matches that aren't against their smurf team without taking a bad hit to their rating, and, of course, they will lose many more points from avoiding those matches than they will gain by fighting their smurf team.
It's definitely a good read and very much worth checking out. Go read it!