Kaiba was the person who was directly responsible for the creation of facilities like Duel Academy. And I can understand and explain his viewpoint of putting Obelisk at the top.
This is a school, and in every school, the more points you score, the higher the grade you get. Keeping that in mind, let's look at the 3 god cards.
First let's look at Obelisk the tormentor.
It is a monster with 4000 points of atk and def. Meaning no matter what, this monster starts off with a solid atk and def power. HOWEVER, it also has an ability to tribute 2 monsters to gain infinite attack. Meaning that from Kaiba's point of view, Obelisk was the monster that had limitless potential in terms of RAW power. This is the exact reason why Kaiba decided that the strongest dorm should be called Obelisk Blue. Which is why most students who where in this dorm, had monsters with high attack power to deal battle damage. Zane Truesdale is the best example of an Obelisk blue player who used a cyber dragon power deck to overwhelm his opponents with attack power.
Now let's look at the winged dragon of ra which is the strongest god from all of the 3.
It is a monster with unknown ATK and DEF. Soo the potential of this monster in terms of ATK power is unknown from the get go. It's ATK and DEF depends on the monsters you sacrifice for it to increase it's power, meaning that unlike Obelisk who starts off with 4000 attack and has the potential to unleash an infinite ATK power, Ra depends too much on the monsters used for it, to gain ATK . And that would not be enough to surpass Obelisk in RAW power.
However what RA lacks in terms of ATK power, it exceeds in special abilities. Ra has the ability to destroy any monster it wants, even if that monster is another god. Soo Ra Yellow was the second strongest dorm in the academy in the eyes of Kaiba. Because it had hidden potential.
Bastion Misawa is the best example of what a Ra Yellow student represent, since he used strategies and tactics that overwhelm his opponents with card effects, more than he does with attacks. Bastion managed to defeat an Obelisk blue students like Chazz Princeton. Which shows that even tho Obelisk represents RAW power that surpasses any other RAW power, Ra can overcome that RAW power with it's hidden abilities.
And last but not least, let's look at Slifer The Sky dragon. The weakest out of the 3.
It is also a monster with unknown potential in terms of ATK and DEf but not in a good way. Even tho slifer's attack can be multiplied be the amount of cards the controller holds in his hands by x1000, at the end of the turn, that player can only hold 6 cards in their hand. Meaning that slifer's attack can remain at 6000 points at best. No matter how many cards a player gets in his hands, at the end of the turn, he has to discard them so he will remain with 6 cards. And if you want slifer to become more powerful, you need to use cards that allow you to draw. From Kaiba's point of view, slifer was weak because it's attack depends too much on the cards that the player holds in his hand. And the only special ability slifer had, was to strike the opponent's monsters to weaken their ATK or DEF. Meaning that the god couldn't save itself if it lacked in raw power against a monster who could survive that ability. Making Slifer the Sky dragon, the one that is dependent too much on other cards to remain powerful. While Obelisk is not depended on other cards to keep his 4000 points of ATk. And Ra will keep the ATK it gains from the monsters that where sacrificed for it and will continue to grow without losing any power.
Ofcourse, when a slifer student improves his deck and he proves his power by wining against a Ra Yellow student or an Obelisk blue student, he will be given the opportunity to join one of the higher dorms, depending on how well he performs and which traits of the two higher dorms he display during his game.
Jaden started in the red dorm because he played with weak elemental hero monsters that where too dependent on other cards to become strong. However he improved a lot during his years in the academy and was given multiple opportunities to move out from the red dorm and become a Ra Yellow or an Obelisk blue student. When Bastion Misawa locked Jaden's polymerization with the trap Cursed Seal of the Forbidden spell, Jaden showed that his deck had the hidden potential to overcome it's dependency on the polymerization card and find ways to win without it. This proved that Jaden was ready to become a Ra Yellow Student. However he simply refused because he felt that he wanted to stay in the red dorm since that is where he felt more comfortable. Jaden could've easly become an Obelisk Blue student as well, since he was able to show RAW power with limitless potential that was on par with that of Zane Truesdale, who was the top Obelisk blue student at the time. During their duel, Jaden managed to increase the attack of his Shining Flare Wingman to 20900, while Zane countered that by increasing his Cyber End Dragon's attack to 36900. Forcing Jaden to use the card Final Fusion to inflict damage to both players equal to the combined ATK of their battling monsters. Ending the game in a draw.
Syrus Truesdale is actually the best example of a Slifer Red student, who started as a weak player with weak monsters, uncertain of his abilities and potential. He gradually became more confident and strong, and started to play with stronger combos and stronger monsters as time progressed. This allowed him to ascend into Ra Yellow and later he became an Obelisk Blue.
Soo let's go over it one more time.
Obelisk is for limitless potential
Ra is for hidden abilities
Slifer is for Dependency
You now understand the logic behind the hierarchy behind the dorms and why Kaiba made them the way they are.
You can also understand why teachers like Vellian Crowler hated the Red Dorm and didn't want it to exist. From his point of view, the weakest students that show no potential go there.
Crowler only wanted students that showed promise right from the get go. If they didn't use RAW power or smart strategies, they where not worth the time. OFC, what Crowler couldn't understand is that the Slifer dorm was neccesary to be there, soo that students who didn't show any promise from the get go, would have the chance and opportunity to prove themselves. Which is what Syrus Truesdale and
Chumley Huffington did.
Chumley was forced to retake his freshman year after he failed his first time around. Maximillion Pegasus offers Chumley a job at Industrial Illusions as a card designer nearing the end of the first year after he wins a card-design contest by creating "Ayers Rock Sunrise". In order to determine whether or not he will be permitted to leave the school, Crowler Duels with him in one final test. Although Chumley manages to hold his own, even getting the chance to play the first card of his own creation, "Ayers Rock Sunrise", he is again defeated. Crowler, however, lets him move on regardless, impressed by how far in his studies he has come. And also pleased that Chumley expressed both RAW power and hidden potential.
