Starting in sixth grade, every team is supposed to do what they call the "equi-draft" which is supposed to balance talent out. It's a confusing process. I know some programs do it earlier. Wayzata groups mainly by grade school for 4th and 5th grade with the private school kids spread out among all the teams. A lot of private schools start tackle in 7th grade, so I expect about 15% of the kids will leave the Wayzata program then.
Replying to this part of the post separately.
Tonka absolutely has the largest youth program and their teams are generally good and well-coached. They had a team running the option flawlessly in sixth grade this year. It killed us - we never imagined having to teach kids to defend it or that kids that age could even pull it off.
Wayzata, where I coach, is focused largely on participation/retention and not as much on winning. As such, at least this year, we as coaches agreed they had one too many teams. With the kids spread that thin, a couple injuries, dropouts, kids missing practices for hockey etc. really screws things up. There needs to be a balance there. Obviously you want kids to play as much as possible, but you aren't going to retain kids if they're getting destroyed every week because losing is no fun.
But at the same time, SLP had 22 kids on their one sixth grade team, and they were just terrible so numbers alone don't do it.