Generally the difference between player skills increases at the high end. That is, the best players are a very tiny %, but are notably better than “very good” players. SR and the tiers represent to players how good people are, and this can be more accurately represented with high tiers that have very few players. This is extremely common practice, done in almost every competitive game. (See CS:GO or League for two other big examples).
Long answer: How Competitive Skill Rating Works (Season 14)
Short answer: It’s how good the system thinks you are, wrapped up in one number, your MMR. This is the only thing used in matchmaking. MMR systems are quite common in video games, and you can look up a lot about how they work.
SR generally it follows very closely to your MMR, as if it deviates you get more/less SR per match until it catches up. SR can be thought of like a filtered MMR, or the visible reward for reaching an MMR. It’s the shiny button we see for achieving a certain skill level (which is really what your MMR represents).
They could remove SR and only show you your tier (bronze/silver/gold/etc). They could give you a percentile in terms of players (e.g. you’re better than 72% of competitive players!) They could give a ranked ladder like top 500 for the entire player base. Nothing about the matchmaking and the games you have would change. These, and SR, are just different ways of displaying your skill. Some games, like Dota 2, just show your actual MMR. That is fairly uncommon.
While usually your SR is equal to your MMR, Blizzard will sometimes make them deviate. Usually a punishment for things like leaving or decay. In these situations, it’s important to note you’re still matched based on your MMR, as that’s all the system see’s. There are GM games with players who have 3000SR from decay.