What it does is you are balanced FIRST by you KDR that you see on the site below your name. Then it attempts to put all banners on the same team provided it doesn't break the KDR balancer.
I don't think KDR should be the priority. Pretty frequently, that's what screws it up.
Common team balance --
Team A:
Loomcrutch McSpamswinger, 30-5
Solodouche deTincan, 28-5
...and a bunch of random noobs averaging 2 kills and 5 deaths.
Team B:
A far more organized group of people with fewer major statwhores.
The problem is that Loomcrutch and his buddy, Solodouche, always break away from the pack right off and go different directions, flanking and generally killing the bottom rung of the other team. Their KDR looks impressive but their killing sprees only last until they run into a group of 5 from the Teamplayer Clan, and probably get shot in the face from 30 meters by a crossbow. Essentially their statwhoring looks impressive, but has little real impact on the battle, and is preventing Team A from getting any actual team players who would help the team actually win.
In summary, balancing by KDR should not be the priority, and I suspect it often does more harm than good. It should be *a* factor but not the main one.