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It compares people of the same age or age category and assumes that IQ is normally distributed, that the average (mean) is 100 and that the standard deviation is something like 15 (IQ tests sometimes differ in their standard deviations).
A standard deviation in IQ points is 15, so 68.2% of the population will have scores between 85 and 115. This is labeled an average IQ, which is just a name for a group of people scoring around the average score. This name for a group helps make it easier to group test takers together. About 95.4% of the population will have an IQ score between 70 and 130, which is everyone within two standard deviations. Scores that are between 70 and 85 may be labeled below average, while scores between 115 and 130 could be labeled above average.