It's a loose term, some people consider tiers for skill and ranking.
Tbf Tier is usually considered around if you play the big tournaments or if you don't, tier is more based on the tournament itself than the teams, if you have a bunch of mediocre teams then the tournament is tier 2/3, if you have the best teams then the tournament is tier 1, not the teams in it are good (for example Mongolz on IEM Oakland) but the majority are great teams so the tournament is the one on tier 1. (Also prize pool matters in most of this, but not really for the tier itself, i mean, you can have a tournament with the best teams and 50k of prize money and still be tier 1, even tho the event feels like tier 3 or such)
Then you have tiers depending on which type of competition the team plays, basing the tier on the team and not the overall tournaments.
The only thing that separes them in that regard is Competitive play vs Amateur play, playing in online leagues and online tournaments n stuff is tier 2 while playing in big LAN tournaments is tier 1 in this regard.
Anyway, as i said, people like to use this term as "this group of teams are better than this other group of teams so they're in another tier"
So you have a group of great teams as tier 1, another group of teams as tier 2 n such, mainly depending on the amount of finals and tournaments they go to, and here there are like 400 fking tiers, you have the Tier 1 of the 4 best teams, tier 2 of a group of the other 6 teams of the top 10, then tier 3 of the other teams and that until tier 4000 with a pug team of MDL.