my understanding is that it is a manual process. the rooms manager (or someone of that ilk) gets a list of guests arriving. this list has notes such as elite status or VIP, etc. he/she then assigns people to upgraded rooms with a keen eye on future check-ins and capacity, etc. i think when one checks in, the front desk has some wiggle room, usually with a manager sign-off (?).

that is my extremely crude understanding of the MANUAL process.