How Does G Determine Relevancy

There might be a sliding scale, there might not be. Everyone talks about it being a good practice but no one has confirmed that it matters much yet.

I look at it like this, if my pet store gets 100 links from barely known dog sites is it better than one link from a Working Mom site with 300,000 visits per day a PR 7 and high DA/PA? Probably not.
The idea is to get valuable links from good sites no matter what they are about BUT getting a great link from a high value Dog site back to my online pet store is sure to help me with sales and ranking too.

I know you can rank in any niche with backlinks from totally unrelated sites. In terms of ranking, there might be some advantage to getting backlinks from sites in the same niche. It stands to reason that, everything else being equal, the more relevant the sites that link to you, the better. However, I don't see that factor having more than a very slight impact on your rankings. VERY slight. Think about it, all kinds of sites link to all kinds of sites. From my personal blog, which is primarily about tropical fish, I can still link to my buddy's model airplane blog, my sister's cross-stitching blog and so on. That's how the Internet works, sites link to each other for way more reasons than just relevance.

However, I do think that Google uses relevancy in order to determine the playing field it puts you in. So according to the relevance of your backlinking profile, combined with your on-page content, Google works out that your main niche is dogs, subniche dog breeding, subsubniche shitzu dog breeding and so on.

Keep in mind that I have no empirical evidence whatsoever of the above. It's just pretty much a brainfart, albeit a somewhat logical one.