Yeah, that's the general gist. You get points and they're assigned no fault. You hit someone, you get 4 points. You get hit by someone, you still get 4 points. If you put more than half your car off the racing surface, you get 1 point for going off track. Losing control (basically having your slip angle pass 90 degrees) nets you two points. Contact with an object gets you two points as well. They're also non-additive. If you go off track, lose control, then plow into another driver, you get four points rather than seven (1 for off, 2 for loss of control, 4 for contact). You just get the points for the most serious infraction and the others are left out. Also of note, "light" contact gets you a notice, but you get no points. I'd imagine that's mostly for bump drafting in oval races or light taps while passing on a road course.

The incident points then determine your license, and your license determines which series you can race in. With a rookie license, you can only run a few series. As your "safety rating" (which is a rating determined via an algorithm they've kept under wraps, but has something to do with the number of incident points per corner turned over the past 'n' corners where 'n' is a specific limit that applies to everyone, but we don't know what it is) climbs, your license level goes up, opening up new series with faster, harder to control cars. The general idea is that they want you to prove that you can drive somewhat competently in slower cars (not have a ton of T1 crashes, keep it on the track, keep it pointing the right way) before you're allowed to compete at higher levels. You can, however, run private races and test sessions with cars outside your license level, I think the license levels really only apply to the official series.

There's also an iRating that's based on your actual finishes, and that's used to determine who you race against. They have "splits" because often more drivers sign up for a race than can fit in a race "room". The Rookie MX-5 series, for instance, allows up to 10 cars in a race. Last night I think we had 45 people signed up, so they were split into five different rooms based on their irating - trying to keep people of similar skill levels in the same room.

It actually works pretty well. I did a rookie race last night since it was my first time back in many years and even then, we didn't have any T1 crashes and you almost never get intentional wreckers like you do in Forza or what have you. They also have a reporting mechanism where you can save a replay and submit it with a protest for a specific driver, which for the most egregious offenses can get the driver banned from the service.