The projected ridership is determined using computer models, which is then used to pick the appropriate technology (subway, LRT, BRT) that has enough capacity to accommodate the riders. Of course there are many other factors such as cost.
Determining the alignment is a bit more complicated. However I know that the Sheppard line was meant to connect North York Centre and Scarborough Centre, so Sheppard Ave made more sense than Finch since it is a shorter distance between these city centres as well as the Yonge and Spadina subway lines. Note that the spadina line would also have to be further extended Finch instead of just from Wilson to Sheppard. The Sheppard alignment is clearly better.
Sheppard Subway (~17 km)
A hypothetical Finch subway (~21 km)
The DRL West leg you mention is not a high priority considering that the crosstown LRT and the UPX (along the very same corridor) will both serve Pearson airport. If high demand ever materializes along the Weston corridor, then a subway extension may be considered. However right now relieving the Yonge line is a much more urgent priority. The DRL alignment through downtown will be influenced by many different considerations. If you're interested in how the final alignment will be narrowed down, then you should read the studies that will come over the next few years. However I don't think Queen street is a good option anymore. It was proposed many years ago because the Queen streetcar was overcrowded and there was nothing happening south of Queen at the time (mostly industrial wastelands). But today King street has much higher density than Queen, so the DRL should be shifted south which would also better serve the financial district, entertainment district, and union station.
Hope this helps