The other answers pretty well cover the "up to" part and many of the factors that can contribute to that speed. As far as how they set the top speed for each tier of their plan, their hosting system has the capability of throttling each connection (some do it at the cable modem level and some do it at their network center level or somewhere in between). Once you reach the maximum allowable speed at any given point in time, your connection is throttled and not allow to go any faster.
Theoretically, at least, your connection is capable of speeds far greater than what you usually get from casual use. If you're doing something like streaming a movie, downloading a huge file and playing an online FPS game at the same time, plus other computers in your household are also doing things at the same time, you can up that bandwidth being demanded significantly.
By throttling users at various levels your provider accomplishes a couple of things. They make sure that there is enough bandwidth for all their clients in an area, they make sure that those who demand and use more bandwidth are paying a larger share of the costs, and they make sure to squeeze every penny out of all their customers that they can.