All children have strengths. In some children, the level of those strengths is great enough for them to be considered ifted / talented.
However, for practical purposes in a school context, using 'relative' giftedness for planning provision is in fact quite sensible.
Think of it as the flip side of SEN - an SEN child is one for whom some special provision (over and above normal in-class differentiation) needs to be made in order for them to make progress in their learning (whether that special provision is due to a physical disability, a type of behaviour or a specific or general learning difficulty).
A 'gifted' child in that school context is a child for whom some special provision needs to be made (over and above normal in-class differentiation) in order for them to make progress in their learning. The top child in the top group is not necessarily gifted IF they are working at a level which is easily accommodated within the normal differentiation for that group. However, it is in practical terms useful to identify them as 'gifted' if special planning needs to be done in every lesson in order to give them work appropriate to their needs.
Of course, that is relative. In some classes in some schools, a child may be identified as gifted (in the sense of needing special provision) while in another school they would simply be a normal member of the top or next to top group. It is the fact that the school needs to make special provision to avoid putting a ceiling on the child's progress that is important in practical terms.
If a child is gifted in a non academic subject (government guidance uses the term' talented' for this though there is little precedent in the academic literature for this terminology) then the special provision may need to be out of school or through links with an outside provider (church choir, sports club, music teaches, swimming club etc etc) - many schools, particularly primary schools, may not be able to nurture that ability appropriately in-house but they should know where it is available in the wider community and be able to signpost children towards it.