Based on non-Microsoft software, what happens is that uncategorised sites are fed back upstream, so the software provider receives a list of pages.

They will then forward this to a partner likely owned in the West but who out-sources most of the actual work to somewhere cheap: like India or perhaps China.

Then you have a bunch of people who come into work, and work their way through a massive list of web-pages trying to spend no more than few seconds on each (metrics etc) and put them into boxes: - Adult - Web Mail - Social Media - News - Entertainment - Gambling - et al

These lists are then sold to many companies like Microsoft, firewall vendors like Sonicwall, Parent Software like Netnanny, and also sold on to people who write anti-spam software.

Essentially it is an entire industry.