I hand out stars based on whims. Seriously. A book that gets three stars today might've gotten 2 stars yesterday or could've gotten 4 stars last week. I try to keep all the ratings to scale, but I'm not one of those people who keeps a running tally of upticks and downticks while I'm reading so I can mathematically derive an objective rating.
I don't re-read a lot of books, so I probably hand out more 5s than most people. I'm also willing to give up on a book after just a few pages if the writing sucks or it's offended me somehow, so I'm willing to give out one stars pretty quickly. I don't know if it averages out, or how my scores compare to other readers. I leave that excercise to someone with more ambition and spare time than I.
1 star: I hated this book and I'm mad at myself for buying it. I will avoid future books by this author, and I will likely give the publisher a wide berth. I usually hand out a single star because the quality of the writing and/or the edition is entirely below standard. Thinly disguised plaigarism, grossly inept characterization, boring plots and settings are easy ways to get me to put down a book. If the author insults my intelligence or the publisher misleads me with their blurb, it's game over. People who highly rate the book are entirely suspect and anything they say is not to be taken seriously. Life is too short to read shitty books.
2 stars: I didn't like it, but the quality of the edition is at least passable with a minimum of grammar/spelling mistakes. Often, these are books that did get the benefit of a run through the spellchecker but were written by someone still at the beginning stages of their craft. The elements of the story were weak, did not hold well together or otherwise failed to impress me. I generally do not finish books I rate two stars. Life is too short to read shitty books. People who highly rate my two stars are suspect, but not necessarily idiots or paid reviewers.
3 stars: If I give a book three stars, it had at least one redeeming quality that kept me interested to the end, or I like the author enough to keep going while I hope it gets better. The book was good enough, I don't feel like I wasted my time or money but the book lacked any real frisson or special "hook" I could hang my allegiance on. There are probably plot holes, weak characters or too much telling and not enough showing. A good story with impossible science, or ridiculous magic, is often three stars. The weakest book in a series I've otherwise totally loved will often get flagged with three stars. Some people might like the book more, some will like it less, and that's ok.
4 stars: I liked the book all the way through to the end, but there was either a specific something that frustrated me (plot holes, impossible science, undeveloped characters, etc) or the whole experience just left me wanting a little more. Maybe there was a particular plot twist that just made no sense, or the book was great right up until the ending that feels like a copout, or it just didn't meet my expectations. Maybe I'm having a bad day and it could be a five star book except I'm grumpy at the moment. People who rate my 4 stars lowly (is that a word?) are probably not people who's shelves I'm going to trawl looking for new books.
5 stars: This book is an example of why I read. The whole thing came together. I didn't feel like I was moving my eyes across contrasted shapes on a perpendicular surface, rather I was completely transported into a different world that I want to be a part of and inhabited with people I'd want to hang out with. It probably gave me some feels at some point, it likely had some explicit sex and violence, and it had a nifty idea or two and some quirky wordsmithing that made me smile. I will look for more books by this author and, if they aren't YA I'll almost certainly buy them. If they were published by a small press I'll look for a collection from the press. People who don't rate my five stars very highly are people who probably aren't into the sorts of books I like anyways.