For the sake of others that are less willing to google it: Elo is a ranking system originally devised to rank chess players, by a man named Arpad Elo. It's not an acronym, just a name. It's a zero-sum system where the winner gains points equal to the amount of points the loser lost - and this amount is based on the probability of a given player winning based on their current scores. As I mentioned before, it also gives extra weight to a player's initial matches, to more rapidly place them.
This system is excellent for rating either individuals or teams, as long as there are only two "competitors" in a match, so it's often used in games, even games that it maybe shouldn't be. Since smash online can have more than two players, it can't use a pure Elo system, and must modify it somehow to account for FFAs. It's likely that for 1v1s, the system is very close to conventional Elo, though. It also deviates from a traditional Elo system in that when characters first place, they start at a value based on your existing average, rather than the average of all players.