The moderation system is designed to remove files that could be harmful to the public and to Host-A. To avoid total dictatorship, there is a kind of forum for each file where you can report it (ex. for being offensive, no permission from copyright owner, etc). Others, including the owner of the file, can add their opinion about whether the file should stay, or go.
Here are the three levels a file can be classified as, what will happen, and what it means:
How the current rating of a file is determined: When a file is reported, each additional comment attached to the report adds to a discussion in regard to whether the file should stay online or be removed. When file moderators post their reasons, they can optionally change the current rating of the file being discussed. The last rating given to a file determines the current rating of the file.
What to do when a file you own is reported: Firstly, read the reason given by whomever reported it. If it's a moderator, you can either debate it with them via the report/comment system, or if the file is clearly in violation of Host-A's terms of service, then you should go ahead and delete the file, or set it as private (which you should then post to say you've set it as private so the moderator knows). If it's a complaint by a downloader, or other Host-A user, their reason could or could not be valid, and you could discuss it with them, however a moderator will come along soon and give an opinion.
What to do when you encounter an inappropriate file on Host-A: Report it! Don't worry if you think your reason is silly, that is why a moderator looks at all complaints, and can give you feedback regarding whether it was or wasn't a bad file. You can report files by clicking the 'Report it' link on the download page of the file.