This was one of the games, including the many sequels and knock-offs of Mortal Kombat, that lead to the formation of the ESRB (Entertainment Software Ratings Board). Created by the IDSA (Interactive Digital Software Association), this current ratings system has been in place for over 10 years. The IDSA was changed to the ESA (Electronic Software Association) not long after.
The ESRB is an independent body of the industry. They rate games differently, yet somewhat similar, to the method the MPAA uses on major feature films. Game companies submit paper work describing the game's content and gameplay. Included is a video of the worst content the game offers. People, both gamers and non, are brought into to evaluate the video, provide their thoughts, and what they believe the rating should be.
Once the process is completed, the game is shipped. No home console game is ever shipped without the ESRB's stamp. Certain PC games do slip out, mostly smaller independent titles, from companies that cannot afford the ESRB's price.
The methods of the ESRB are fuel for critics who believe they do not have the public's best interest in mind. Since they are funded by the game companies, they rarely hand out the strongest rating: AO, for Adults Only. The rating was never seen for any game console until Grand Theft Auto: San Andreas was found to have hidden content on every commercial copy.