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Speed limits are ultimately determined by safety. In California, the speed limit on residential streets is (generally) 25 mph. But if there is a proven history of speeding (usually resulting from multiple complaints from multiple residents over a period of time) in a particular neighborhood, speed bumps may be installed, along with a lowering of the speed limit to 15mph.

2nd Answer:

Traffic engineers test how much friction various pavements have, and how much friction various tires have. They look at those friction also for wet pavements. From that they calculate what distance a vehicle might need to stop in and be safe. Using the distance and friction factors, they calculate the maximum speed an average vehicle must go in order to stop in that calculated safe distance.

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