I always find myself wondering what method people use to judge who deserves to be in smash
Obviously there's no formulaic or definitive way to go about it, and my thoughts on certain characters are constantly evolving, but here's what I generally look at (in no particular order):
Popularity. Within their franchise's fandom, the Smash fandom, and/or the general Nintendo fandom. It's also important to consider both the hardcore and casual demographics.
Performances of the the games they appear in. The most readily quantifiable measure is sales, though sales are not everything and there is a lot of nuance to consider. Particularly the context behind sales is important, for example how the game did relative to others on the same console or within the same franchise, or if there were any other significant factors that influenced the numbers.
While the methods of quantification are shakier than sales, I also consider critical and fan reception to games as a part of evaluating their legacy and importance. In addition to that, I also value games with a particularly strong impact on the industry, or that were defining moments for their franchises.
Role importance within the games they appear in and importance within their franchise as a whole. For an (extreme) example, being the primary protagonist in a particular game is worth way more than being a one-liner NPC in that same game. It's inevitable but also sensible that characters will be measured up against other options from the same franchise. Though "important within their franchise" also has to be adapted to how that franchise handles its cast.
The importance/size of the franchise itself. It makes sense to have a lot of characters from Mario, for example, but I don't think we need like five reps from Ice Climber. This also bleeds into the "performances of the games they appear in." Size of the franchise mostly has to do with the previously listed barometers of performance like sales, reception, popularity, number of games, and history of impact.
Prevalence in marketing and merchandise. This can also be an indicator that Nintendo values that particular character, or an indicator that they are popular and recognized by fans. Though sometimes it can be difficult to measure or compare between characters.
Other intangibles. Sometimes games and characters have a certain significance that is difficult to quantify or fit into one of the categories above. Basically, the above items are not the only ones that can constitute merit, though most characters with a lot of merit will be strong in many of those aspects.
And of course, being weak in one area is not a disqualifier, and can potentially be made up for by being strong in other areas. Different characters get in for different reasons.
Besides all of this, there are also the practical matters of giving the character a workable, fun, and unique moveset. Though I don't view the moveset as something that makes them deserving or not. Having issues being made to work from a practical/gameplay perspective doesn't make them undeserving; it's just an unfortunate occurrence when an otherwise awesome character can't make it for one reason or another. Though as we saw with Ridley and Villager, sometimes overwhelming merit can force them to search for a solution for a character that was previously deemed unworkable.