Badges are assigned by the system based on the activity of the user and the responses to their activity by other users. See https://answers.atlassian.com/badges/ for a mostly human description of the badges. e.g. "nice question" = "question voted up two times"
Users sign themselves up.
Some users get additional rights, set either by system administrators or by accumulating Karma (which is granted by other users liking their activity). As an example, I can "close" questions, because I've got a karma level higher than the threshold for which that is set.
System administrators are set up by Atlassian.
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