There's more freedom than you would think. I work at Carl Fischer, one of the leading educational publishers and we have our own grading system approximately 0.5 to 5 for band and orchestra pieces. We have to have an arbitrary system because of differing state standards when it comes to music education grading. In New York, for example, the NYSSMA manual grades all pieces in the repertoire (based on their editions) from Level 1-6. Other states have similar schemes. These state-approved grading schemes are probably what you're referring to above, but rarely is any director bound by such standards. More often it is a helpful tool to gauge how difficult piece is compared to their ensemble's ability so as not to give them something too hard but also something that will challenge and inspire the kids.