Our Quality team uses a formula based on how many defects it contains out of the total allowable defects for a book of its length. Longer titles are allowed more defects than shorter ones because the overall impact is distributed. Note that “locations” below refers to the internal divisions of an ebook, not pages or chapters.
While we are not able to disclose this specific formula, please be informed that an average sized novel with around 3000 locations will trigger the quality warning with 10-15 typos.
3000 locations is ~70k words or somewhere in the 230-250 page range.
Bearing in mind that errors have to be reported by multiple people to count and that under the current system authors currently get 3 warnings (i.e. chances to fix or argue why it's on purpose) before Amazon even starts to threaten pulling the book, I think it's going to be interesting.
While some authors will certainly use this as a way to get free copy-editing out of paying readers, it means that if a book does have that warning label on it's really going to be one to avoid. I also wonder just how many errors it actually takes to get to the second level, where the book is "Not Available" until it's fixed!
Earlier post about this here.