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Generally those people have an idea based on comparison testing, as far as I can tell. If you have three Bs, and each one is superior to sire, then you can tell higher/lower papers that way. After a while I’m sure people get to the point they can eyeball it to some extent based on the parents.

Also say you have a red papered mare and it produces a red papered foal with a B papered sire and the red papered foal is cut on BA then it is likely that the mare the mare is a mid or high red as its foal of the same paper got spayed.

Here's what I've learned about it from personal experience. This will repeat a lot of what has already been said, but, I hope in a slightly different way.

My primary example of low/middle/high in a given paper level comes from comparison testing foals from a given sire in a pasture, sometimes over a couple of different game years, so that the mares, who may not have had a full pasture bonus the first year, do in the next year.

A C papered sire gives me 10 B papered sons. So I start comparing them to their sire. The first colt I compare to sire tests About As Good As the sire. I would consider this as meaning a "just squeaked into the next paper level" colt and he would automatically be snipped. Colt 2 tests Superior to Sire. He remains intact and I begin comparing his brothers to him. Colt 3, 4, 5, test about as good as Colt 2 and remain intact. Colt 6 tests Superior to Colt 2. He remains intact and all the colts tested before him are snipped. Colt 6 tests superior to colts 7 and 8, so they get snipped. Colt 10 tests about as good as colt 6 and remains intact.

Colts 6 and 10 would classify, in my mind, as high B stallions. Colts 2, 3, 4, 5, and likely 7, and 8, would fall into my "middle B" mental grouping.

I haven't gone so far as to start comparing Average Foal PT's for my stallions, but that would also contribute to sorting stallions with the same paper level.