http://smashboards.com/threads/tournament-mechanics-a-primer.124132/
I'd direct you to this well written thread about tournaments, seeding, and bracket theory. Tournaments can be ran many different ways, which is well explained in the above thread. Round Robin pools, which are common in the smash community, break up all the players into smaller groups for purposes of seeding a later double elimination bracket. Seeding means arranging players based on skill.
Let's say we have 32 players in the tournament, we might break them up into 4 pools of 8 players. These 8 players will do a round robin (play every person in their pool) and record the scores of all the matches. In this tournament, the top 4 placing players make it into a 16 man double elimination bracket. The top four players (those with the best scores) of each pool will then be seeded into the bracket based on their pool performance. This means that the #1 seeds will play the #4 seeds, and the #2s will play the #3s. This gives a competitive atmosphere which is fair and the players who do well in pools are rewarded for good performance.
A well run tournament should use seeding rather than random bracket creation because it gives a more competitive atmosphere. The more luck which is involved usually tends to deter competition, and seeding is one way in which luck is reduced in tournaments. In a game of skill, the better player should win, and this is a way to create the optimal environment for competition.