Their are two challenge rules:
1. Challenge Span
This is the maximum number of positions between the two participants for a match to be played. For example if the Challenge Span is 3, then participants in positions 2 and 6 cannot play each other. The matches that can be played for participant in position 2 would be against positions 1, 3, 4, and 5.
2. Free Challenges
Set a number of times each participant can "break" the Challenge Span rule - essentially allowing them to play against any other participant n times. You may just add participants to the ladder ad-hoc or you may have set Automatically add participants to the ladder after they have signed up. These participants will start out at the bottom of the ladder. Free challenges helps participants to find their equilibrium position in the ladder. For example, if a good player found themselves, after setup or entry, at the bottom of the league in position 16 and knew that they should be able to beat the participant in position 4, they can use a free challenge to play that participant. If they won they would rise to position 4 instantly while the participant in position 4 would drop to position 5. If the person lost that match they would remain in position 16. So they could use another free challenge to either play the same participant again or to try against position 6.
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