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Percentiles indicate how a test score compares to a specific population or group. When a score is reported as a percentile, it shows the percentage of scores in the reference group that fall below that particular score. For example, if a score is at the 75th percentile, it means that the individual scored better than 75% of the participants in the group, placing them higher in rank order relative to their peers.

This ranking mechanism is crucial as it provides a way to understand an individual's performance in the context of others, rather than just providing an absolute score. Absolute scores alone do not convey how well an individual performed relative to others, which is why understanding percentiles is essential in interpreting test results in fields like education and rehabilitation counseling. The other options do not accurately reflect what percentiles signify; they focus on direct measures or different statistical concepts, which do not relate to comparative ranking.