Tornadoes are measured by how much damage they cause.
Tornado damage is determined by the Fujita Scale, which was originally developed in 1971 by Theodore Fujita of the University of Chicago. The Enhanced Fujita Scale was implemented by NOAA in 2007.
How Is the Scale Determined?
The scale goes from F0 to F5 in severity. Wind speed is not actually measured, but is estimated based on the damage caused to manmade structures and trees. There are 28 different damage indicators, which refer to the object damaged. These might be small barns, strip malls, factories, trees, etc. There are eight levels of damage defined for each type of indicator. It takes a trained and experienced surveyor to apply the scale to observed damage, as the factors to consider are many. 
What Do the Enhanced Fujita Scale Numbers Mean?
From these observations, the levels and indicators are combined to estimate wind speeds from 65 to over 200 mph. EF0 tornadoes have gusts of wind 65-85 mph. EF1 goes from 86-100 mph, EF2 from 111-135 mph, EF3 from 136-165 mph, EF4 from 166-200 mph, and EF5 is the level, which indicates estimated gusts over 200 mph. 
Does Size Relate to Strength?
The physical size of a tornado has little to do with its intensity, and any one tornado may change size as it travels.
How Severe Are Most Tornadoes?
Based on records from 1950-1994, just under three-quarters of all tornadoes were in the F0-F1 range, and are considered very weak. A quarter were strong, F2-F3, and only 1% were violent at F4-F5. As might be expected, most of the deaths, about two-thirds, are the result of tornadoes classed as violent. Four percent of deaths occur during weak tornadoes. 
Although somewhat subjective, the Fujita Scale has been extremely useful in quantifying data about the effects of tornadoes.
” Enhanced Fujita Tornado Damage Scale.” National Oceanic and Atmospheric Administration. N.p., n.d. Web. 23 Jan. 2013. <http://www.spc.noaa.gov/faq/tornado/ef-scale.html>.
” Fujita Tornado Damage Scale.” National Oceanic and Atmospheric. N.p., n.d. Web. 23 Jan. 2013. <http://www.spc.noaa.gov/faq/tornado/f-scale.html>.
”The Fujita Scale of Tornado Intensity.” Tornado Project Online. N.p., n.d. Web. 23 Jan. 2013. <http://www.tornadoproject.com/fscale/fscale.htm>.