Every year, exams are held to test the mastery of the cultivators. Those who achieve a certain level of excellence are rewarded with Dao Status befitting their level of excellence.
So Dao Status isn't earned based on power. It is why the third rank 5 cultivator from their sect doesn't possess a Level 5 Dao Status and why that rank 5 cultivator isn't as respected as the rank 4 cultivator with Level 5 Dao Status.
This is one of the reasons why the disciples of the Myriad Phenomenon Sect are weaker in fighting than the disciples of the youngest sect. But their intelligence is not to be underestimated at all.
This situation is an example of a situation where they are using their superior intelligence to defeat those who are stronger than they are. They picked a location close to a place where many inhabitants of this world are dying and plan to take advantage of the situation to kill everyone and be victorious in this Heavenly Battlefield.
