They will not be completely transparent about how it is done. But they used to give more info and said it was based on shelvings (read/to be read) with some eye toward number of ratings, and that it has to have an average of at least 3.5 stars.

So someone like Emily Henry (who will have 500,000+ ratings is likely to have even more shelvings) will get on the list before something with a higher average rating, but maybe only 50,000 shelvings.

It should be noted that when you enter a Goodreads giveaway they automatically add the book to your to be read shelf, so I think that also contributes to it. But it is very much what is popular (even if, it seems, it hasn’t actually been read).