There are 5 tiers in brawl. Each tier has a different assortment of frays. Higher tiers have more frays, higher league frays, and more specialized frays. Lower tiers have fewer frays (since lower level guilds have fewer guild members) and the frays tend to focus on lower leagues and are easier to participate in.
The maximum tier that can be selected by a guild are limited by that guild's arena building. If you only have a level 1 or 2 arena, then you can only participate in tier 1 brawls. If you have a level 3 or 4 arena, you can participate in tier 1 or tier 2 brawls. If you have a level 5 or 6 arena, you can participate in tier 1, tier 2, or tier 3 brawls.
When you upgrade your guild's arena to a level which unlocks a new tier, your tier will automatically be set to that new tier level. However, during the results phase of brawl, you can always change your tier by going to the "Brawl" section, clicking the "Settings" button, and selecting the tier level you want.
Guilds can choose a lower tier level. If you upgrade your arena to Level 3 and realize that Tier 2 brawls is too difficult for your guild, then you can choose to stay in tier 1. However, the rewards multiplier for an arena is capped based on the tier you are participating in. Tier 1 brawls have a rewards multiplier capped at x1.5 (level 2), even if you have a Level 3 or Level 5 arena. Tier 2 brawls have a rewards multiplier capped at x3 (level 4), even if you have a Level 5 or Level 10 arena.