How do the star ratings work?

I am not the biggest fan of star ratings and originally intended not to include any. In particular, I hate it when movie posters and trailers just list a parade of stars with the sources underneath.
In the end, however, as in so much else, I took Halliwell as my model and used his four-star system.

True masterpieces, films of great achievement and importance, are awarded four stars. A four star film is rare, because it means one that I would not change in any way, even in my wildest dreams.
Three stars serve as much as anything to distinguish the four-star films - a film that is in many ways excellent and important but just falls short of perfection gets the three. There are, as there should be, more three star than four star films. Three stars indicates an extremely high level of achievement, even greatness, that just, perhaps, falls short of transcendence.
Two stars indicates a good level of above average merit; such films do not achieve, or just as often do not attempt, greatness, but they are distinguished professional productions with a great deal to commend them. 
One star is a mark for trying, or perhaps an indication of some more esoteric point of interest than does not equate with unequivocal excellence but nonetheless makes it worthy of special consideration. The presence of a star means that the film is, if nothing else, above or apart from the strictly routine.
No stars may mean a bad film, but can just as often designate a simply routine production. It might still be enjoyable, but it is in no particular way distinguishable from dozens of others. If I think the film really is a stinker I'll leave you in no doubt in the review, but that should in no way be inferred from the mere fact that it has no stars.

In all cases, the rating itself does not tell all: it is merely a shorthand, to be qualified in the review itself, and there are two important points to remember.
One is that star ratings are decided strictly on the merits of the film in question, without regard to any other context; in other words it would be wrong to compare films by rating alone. An exceptionally good B-movie may score higher than a routine A-film, but that doesn't mean it's a better film, merely a more remarkable example in its own field. It certainly should not be taken, for example, that all two star films are 'better' than all one star films, even if, as Halliwell notes, it were not absurd to attempt to compare Citizen Kane and Frankenstein Meets the Wolf Man in the first place.

Second, and again like Halliwell, I tend to be stingier with my stars than is currently fashionable. (I often read reviews where the author is highly critical of the film, expresses profound disappointment, and then concludes with something like 'only seven out of ten'!) Please note that a star is an indication of merit: a film has to earn it. So far from 'poor', one star means at least one good reason for taking a look. I do not fling stars around like they're going out of fashion: no stars need not indicate anything worse than a production that does not rise above the level of the routine.
Complete masterpieces are rare. And I will endeavour to resist the temptation to give extravagant star ratings to films I love for purely personal reasons, though I will of course try to convey that affection in the review itself.