While the previous post is more or less the way most major U.S. airlines work, there's a great deal of variation worldwide. Many airlines put a premium on how much revenue you mean to them, usually by giving more status credit for higher paid fare levels. Many, while not providing lifetime status, make it easier to requalify for a level than it is to earn it the first time and/or don't drop a person more than one level per year even if s/he didn't fly at all.

It all depends on what kind of behavior an airline wants to encourage and how much imagination its planners have in coming up with devious ways to encourage it, while trying not to give too much to folks like us who look for ways to earn status as cheaply as possible. You really have to check each airline's Web site, or alternatively its forum here and its reviews in InsideFlyer, for specifics.