Rav Hirsch points out that the way this was done was to choose
not one placed over a thousand but rather one picked out of a thousand
as "the best and most capable". A שר אלף was one chosen out of a
thousand, a שר מאה one chosen out of a hundred etc. It is evident that
if one first gathers the nation in groups of of a thousand and
extracts the best of each thousand, then in groups of a hundred and
picks out the best of each group, an so on until groups of ten, there
will be four groups of men, each group being superior in character and
ability to the preceding one. If we consider, as seems to be deduced
from Deut. I,13 that all these men who were to receive appointment
were nominated by the people themselves, and only confirmed and
appointed by Moses - there it says "choos", literally give - for
yourselves men of wisdom and insight, who are known to yoour tribes,
them I will set at you head" - then this mode of choosing seems even
more to the point. Each thousand had first to pick out the best and
most efficient man and then each hundred and so on until the smallest
voting groups of tens So that four grades of efficiency and
trustworthiness were formed, each one superior to the next.
From memory, there are those who say that from five groups of שרי עשר , the best person was chosen to be a שר חמישים. From two of those groups, the best was chosen as a שר מאה and from ten of those a שר אלף.
Thanks to @רבות מחשבות for pointing to Why does Yisro recommend so many judges? and Yisro 18:21
However, there are those who say that this is not so (but more like Rav Hirsch) That the groups of the tens got together to vote on the best and so forth. This is because each group had specific duties which did not overlap as the different groups of judges (up to the Sanhedrin in Yerushalaim) were set up in Eretz Yisrael.