Trial and error + a basic understanding of how light actually works...
It's mainly about relative size, that it, the size of the light source relative to the size of the subject. If you have a large light source, say a big softbox or an umbrella, and you place it close to a small subject, say a Yorkshire Terrier, the light will be large relative to the size of the subject, the light will strike the subject from many different angles (wrap around effect) and you'll get soft lighting, which may or may not be what you want.
Move the light further away and it will become smaller, relative to the size of the subject, and the light will become less soft, which may or may not be what you want.
And if you move the light a long way away and shoot with just the standard reflector, the light will become even less soft, which may or may not be what you want.
Just like the sun. It's about 100 times as big as the earth, but because it is also 93 million miles away, it looks tiny and produces hard light, when there are no clouds to diffuse it.