How do Overwatch placements work?

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At the start of every season, every player has to complete 10 placement matches in order to be placed in their ranked category, from Bronze to Grand Master. Your placement depends on a number of things, but it is generally based on your Skill Rating (SR) and hidden Matchmaking Rating (MMR). 

There are two scenarios in which players will start their placements - players that have never played competitive before and players that have.

New Players

If you have never played a competitive season of Overwatch before, you will have been required to level to Level 25 before being able to queue into competitive. This was implemented by the Overwatch team not only to ensure that you learn how the game and the heroes work, but also to try and effectively gauge your skill level. 

Since you have never played competitive before, the game cannot use your previous season's SR to try and put you into a balanced match. Instead, it will have collected data about how you played so far in your non-competitive games and created a hidden MMR for your account. This hidden MMR acts as a more complicated version of the SR system, gauging your skill level and matching you up with the equivalent SR levels that other players have gained in previous or, when you queue up later in the season, in the current season.

Once you complete each placement match, your hidden MMR will begin to adjust and start changing who you are playing with. If you manage to perform far above what your hidden MMR suggests you should, you will be playing with increasingly skilled players.

After you have completed 10 placement matches, the game will give you an SR rank based on your hidden MMR after the 10 matches. If you feel you have been placed unfairly, you will likely see your rank either increase or decrease very quickly to adjust you to play with people that are of your skill level.

Returning Players

For returning players, the process is much simpler. The game will take your SR from last season, as well as your hidden MMR, and place you in matches with people of a similar skill level. The game will then judge your performance over the course of your 10 matches and then place you accordingly.

It's worth noting that a returning players placement will not be drastically different from their previous season's end (unless you decayed from a much higher rank). You should not expect to win 10 games after finishing the last season in Silver and then place in Grand Master next season.