Do they look at win rates and adjust setups to reach a particular number (e.g. 50% village win rate), or is it based on some other assessment of strength of the two sides, and what the two sides SHOULD be able to accomplish if they play well?
Hosts/Mods usually access a separate page to create their setup, with role cards provided. Each role card holds a specific score (e.g. Seer is at 9 points, GrandVizier at 8 points, etc.) which then is tallied with the other scores to generate a predicted percentage for each faction that's added into the setup.
At this point, each host/mod builds their setup in their own way. I'll answer by sharing how I build my setups, which should give you some basic insight. Other hosts/mods are encouraged to add their input as well.
When I create my setups, I usually start with a particular theme (e.g. Subfaction war, GY-heavy intel, etc.). Once I've added the roles I want in there, I start tweaking the setup to make sure the balance is slightly more favoured to the village (e.g. Village:Wolf = 55:45). I'll not always achieve that exact ratio, but I'll try to get as close as I possibly can. If the setup has more factions (e.g. coven), then village gets the highest chance, and a bit more leverage to coven over wolves. There will be some setups where I don't try to get the exact ratio down, and the setup is made just to have some light-hearted fun.