They take their observations of you and your self report of symptoms, and then compare those to the criteria for different diagnoses. The DSM IV is the book used right now. The DSM V is coming out in a few years and will updated criteria. (Don't know what is used in other countries than the US)

For example when I met my PNP, I met almost every symptom for a severe case of Major depression. Severely depressed people are terrible historians, so I had forgotten about the "up" times in my life and never told her about them. Since I had never sought psych help before she had no prior records to look at. So Major Depression was my diagnosis.

Then I had a lovely hypomanic episode brought on by the Zoloft she had given me. I was freaked out, and I told her that the hypomania reminded me of other times in my life that I had felt and acted that way, but not so intensely. I had actually suspected bipolar in the past, but thought I couldn't be bipolar if I wasn't fully manic.

So it was nobody's fault the diagnosis was not correct the first time. I had forgotten, and she is not psychic. It's the frustrating thing about mental illness...the illness can change. It can go away. You can have more than one, and there is symptom overlap.