My dd's school decide on sets (for all subjects) when they start the school based on their primary school SAT's results.
My dd received all level 5's in her primary school SAT's results and was placed in set 3 and after their exams in the new year, achieved all level 5a's but wasn't moved up. She's quiet and well behaved.
SATS are just the starting point though - or should be at a good school. Even schools which use SATS alone for setting purposes should still allow movement between the sets when it becomes apparent that a child is much more able than their SATS suggest (or are struggling more than their SATS suggest).
When you've got 200+ children all starting on the same day in September, there is usually a pretty blunt tool used to assess them. There isn't time or money to spend weeks examining each child's strengths in detail. So they do a rough sort through at first and then tweak it as the year goes