This is from a recent Yunnan Sourcing mailer. He's talking about ripe but I assume the same applies to sheng:
Ripe Pu-erh grading explained!
Have you ever wondered what Grade 3 ripe pu-erh tea is? or Palace (Gong Ting) grade? Ripe Pu-erh grade is based on the size of the leaf. After the fermentation process is completed, ripe pu-erh is separated into different grades. Each different leaf grade will impart a slightly different taste. When ripe tea cakes, bricks and tuos are pressed they are usually a blend of different leaf grades. Blending is used to bring more complexity to the overall taste of the finished product. Leaf grades from smallest to largest: Gong Ting, Te Ji, Grade 1, Grade 2, Grade 3, Grade 4, Grade 5, Grade 6, Grade 7, Grade 8, Grade 9 Other by-products of ripe fermentation might include: Zao Xiang Ye (or Cu Ye, large coarse leaf), Cha Tou (tea nugget), and "small broken" (gao sui) grade leaf, which is often sold as a cheaper form of Gong Ting.
Regardless of grade, the quality of a ripe pu-erh tea lies more with the overall quality of the tea leaves, the quality and control of the fermentation process, and the blend/recipe of the finished product. In most cases a blend of several different leaf grades will impart a more textured and complex tea with better long-term aging prospects.