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In case you're not leveling:
Basically, every team starts out with a score of 0.50. (This is what I mean by the ranking having no pre-ranking--Each team starts at the exact same level). As the teams play more and more games, you get more credit for playing a "better" team (better meaning the team with the higher Colley ranking). Thus you gain more points for beating a higher ranked team.
http://www.colleyrankings.com/advan.html
http://www.colleyrankings.com/matrate.pdf
The end result is exactly what the person I was responding to suggested, look solely at the records of the teams each team plays. So you have
LSU
W (4-4)
W (6-1)
W (3-5)
W (6-2)
W (2-5)
W (5-2)
L (6-2)
W (5-3)
being higher than OSU
W (0-7)
W (3-4)
W (2-5)
W (5-3)
W (1-7)
W (6-2)
W (3-5)
W (5-3)
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I oversimplified. You don't just look at the records of the teams you played. You look at the records of the teams the opponent plays. You iteratively look at the result of each game, which is why LSU's 6-2 opponent (South Carolina) is ranked higher than OSU's 6-2 opponent (Purdue), in turn giving LSU more points for beating South Carolina than OSU got for beating Purdue (who hasn't beaten any team in the top 70).
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its definitely interesting. it seems margin of victory is necessary as a good team playing in a crappy conference has no shot of ending up on top, whether they are the best or not. but i've also argued at times that beating the pants off of crappy teams doesn't necessarily prove anything so i don't know.