As I understand it this is what happens:
You put down school A as first choice, B as second, C as third and so on- according to your preference.
The list of applications to school A by any preference number of all applicants is ranked according to that school's admissions process - whatever it may be (banding, distance, ability etc). If that's distance there will then be a ranked list of all applicants by distance, same for ability, etc.
Those with A as first choice get offered a place in order of rank, up to the number of places (say 120).
Assuming there are any places left after that at 'A' school (maybe only 60 people put 'A' as first choice); anyone who didn't get a place at their first choice and put A as their second choice will them be offered a place at 'A' according to the ranking order for that school.
This process goes on until all the applications are done.
Then once places are offered some people may turn down places, freeing up places to be offered in a second round; again according to the same criteria...
I 'think' that's how it's done - does that make sense?