The different letters are supposed to mean something. There's probably no single definition that would please everybody, but here's my attempt:
- S: characters who are so good the meta warps around them. Think ST Sagat or Claw, vanilla marvel Phoenix, or 3S Chun. These characters often invalidate many other characters from being tournament viable and have few, if any match-ups which are worse than 5-5.
- A: characters who are clearly tournament viable and stable, but don't warp the meta like S tier characters do and may actually have a few tough match-ups. Think +r Faust, UMvC3 Wolverine, or 3S Dudley.
- B: characters who are on the edge of tournament viability. They have flaws and they have some legitimately tough match-ups (against S tier characters, probably), which may force you to counterpick sometimes. However, you can win with them with perseverance and being a specialist. Think UMvC3 Wesker, +r A.B.A., or 3S Oro.
- C and below: characters who aren't really tournament viable. Think 3S Twelve, ST Cammy, UMvC3 She-hulk.
By definition, S tier can't contain that many characters. If everybody is warping the meta around them, nobody is warping the meta around them. Everybody can't have 7-3 match-ups against everybody else—it's mathematically impossible. A very balanced game may not even have an S tier (but the existence of an S tier almost implies the existence of a B tier). A perfectly balanced game would be literally everybody in A tier.
Tier lists made with those definitions in mind give me valuable information. If I look at a reputable tier list and there's a C tier, I know those characters should be ignored (who wants to lose at character select?). If a game has some characters in S tier but I'm not interested in picking any of the S tier characters myself, I will want to look at prospective characters' match-ups against the S tier characters when picking a main.
If a tier list puts 75% of the cast in S tier, it's logically impossible and it's useless. It's sugarcoating because it's giving every character a participation trophy instead of conveying useful information or contributing to meaningful discussion.