The government has prepared a report summarizing CAFE for you.
http://www.nhtsa.gov/staticfiles/rul...al_Rule_FR.pdf
A couple of things are important. First, CAFE uses a harmonic mean. This means that vehicles which produce more CO2 count very heavily against manufacturers. However, CAFE also takes into account the footprint of vehicles. A formula for vehicle footprint is found in the above link.
Small vehicles with gas guzzling engines are very bad for manufacturers. Bigger vehicles, by virtue of their larger footprint, count less. To a certain extent, manufacturers can play the system to produce larger footprint cars and get a more lenient fuel economy standard. At the same time, these larger vehicles weigh more thus reducing fuel economy. There must be a fine balancing act.
Mathematically, there is a formula for determination of a fuel economy target in a given year. The formula can be found in the link I posted above. The parameters in the equation are given a physical interpretation. Their selection seems arbitrary though.