As I understand it, a Class 'C' team cannot have anymore than four players on the team from outside the school district (regardless of where the player goes to school, they live in the district). REC All Star teams normally meet that criteria and can fall into that 'C' category, but also have their own designation as Class 'D'. Class 'A' and 'B' don't have any restrictions on where the players are from but are more about the level of competition that the team competes at. Class 'B' are most local travel teams and community based tournament teams while Class 'A' are your premiere showcase teams.
All that said, I have yet to see anything that "officially" shows a definition of each class.