Starting in 2011 (for 2012 entry), graduate medicine places (aside from those at the University of Sydney and, as of 2016, Flinders University and Monash University) have been allocated through the GEMSAS system. Applicants can now select up to six preferences and a computer matching system will match each candidate to the highest university for which they are competitive. For interview matching, applicants are scored on the basis of the interview weightings listed here; for offers, the matching process takes place a second time using the offer weightings listed here and taking into account applicants' interview scores where appropriate.
With the advent of this new system and the number of preferences being increased to six, it is no longer quite so important to choose your preferences on the basis of where you think you will be competitive. You are automatically matched to the highest of your preferences for which you are competitive and there is no disadvantage in not having preferenced a particular university first; whether you interview at preference #1 or preference #6 you will still be treated the same. However, it is still worth being aware of the different criteria used by each university; preferencing a university that plays to your strengths (whether they be GPA, GAMSAT, interview or other) may increase your chance of being higher up the ranking list and obtaining a CSP/MRBS. Bear in mind that if you are below the minimum admissions criteria for a certain university you will not be considered for an interview or a place there. Bear in mind also that if you interview at, for example, your #3 preference, you cannot be considered for an offer later on by your #1 and #2 preferences. You can only be offered a place by preferences #3-6.
So how do you choose your preferences? Primarily you should be looking at the different qualities of each university and the pros and cons of each course. Would you prefer a larger or a smaller cohort? Are you interested in a university that has a greater focus on rural issues? Do you want to stay in your current location or are you happy to move interstate? Take all of these factors into account and order your preferences on the basis of how much you would like to attend each university. If you are having trouble deciding between two universities and you are concerned about which type of place you may receive, it is still worth looking at the admissions criteria and choosing between them on the basis of which is likely to rank you highest.
One factor to take into account, which is becoming increasingly relevant, is the state in which you want to work. As the tsunami of medical graduates washes through the system, it is getting harder and harder for those who complete their degree outside of a particular state to secure an internship spot in that state. If you are limited in terms of the state(s) in which you wish to work then consider very carefully whether you are willing to go to medical school outside of those state(s) and risk not undertaking your internship in your preferred location. I highly recommend reading up on the PagingDr forum about the ongoing tsunami.
For some ideas about how to order your preferences, have a play with the Magical Preference Machine!