The point system was the former system used to judge who belonged in The Good Place and who belongs in The Bad Place. The system would analyze every human's actions, rewarding positive consequences with "goodness" points and deducting them as a result of negative consequences. Or not providing any points based on "corrupt" motivations. When a person dies, their total point score is counted up. With those totaling atleast 1 million points granted entrance to the Good Place. However, failure to reach that standard, even if for just not being altruistic enough as opposed to a "bad person", results in damnation to the Bad Place. Furthermore, points could be deducted as a result of unintended consequences, such as Chidi Anagonye being sent to the Bad Place due to annoying everyone with his indecisiveness, despite trying all his life to be ethical.
A person could also easily lose enough points to be condemned to the Bad Place for causing minor nuisances to a large number of people, since causing negative feelings (however small in even one person) cost you points, which are then multiplied. Such as Walt Disney being condemned for creating the It’s A Small World ride, or a couple for having a Lord of the Rings style destination themed destination wedding.
The system ultimately proved to be very rigid as time went on. With human society becoming more ethically complicated, primarily thanks to increasing industrialization and environmental impacts. Furthermore, the system deducted points based on stereotypes, automatically deeming anyone French or from Florida to be automatically deserving of going to the Bad Place regardless of their actions.
Though the system originally allowed only the best of humanity to enter the Good Place, around 521 years ago, human society became so interconnected and complicated that it became impossible to get into the Good Place, as every action indirectly resulted in negative consequences. For example, in the modern age, gifting flowers to one's grandmother would result in points being deducted via indirect support of illegal pesticides, unfair labor, use of a cellphone made in a sweat shop (which also generated a large carbon footprint), and the money going to a sexist CEO. Even Doug Forcett, who lived a completely self-sacrificial lifestyle, was only able to achieve half of the minimum points required to enter the Good Place by the time he was sixty-eight, thus unable to achieve enough points by the time he died.
This system is used by Michael to try and prove just how much each of the main characters had improved by being in his simulation by putting them back into the world to try their lives again and seeing how much their point total added up to.
Following Michael and the Soul Squads case, the Afterlife reworked the system to put all new souls in a purgatory like Neighborhood 12358W, so they can be tested with the knowledge they are dead; allowing to either let their true sinfulness out or be at peace and treat everyone kindly. The improvement score from The Test determines if they go up or down.