FIFA have a very complex process for working out World rankings, you can see the league here:
http://www.fifa.com/w...nkingtable/index.html
The rankings are worked out based on every match you play. They compare where you are in the rankings and where the team you play are in the rankings and you get "points" based on the result (so you get more "points" for beating say Brazil than you would for beating Bolivia).
Also the "value" of the points decreases over a 4 year period I think. So games you played 2 or 3 or 4 years ago also count, though you only get a percentage of their original value.
Remember we qualified top of our Euro 2012 group winning 5 and drawing 3 (unbeaten), giving us lots of ranking "points", and in our Euro 2012 group we won 2 and drew 1, again decent ranking points.
In fact it could be argued we drew 0-0 with Italy in our last match so hardly disgraced.
So in our last twelve Euro 2012 games (8 qualifying, 3 group stage and the Italy match) we are unbeaten (except the last game and only on penalties).
That is not a bad record and stands up against most teams except the very best like Germany or Spain.