It's hard to know what coaches are thinking during tryouts. I would say the scenario you lined out is pretty common among high schools though. Where all the freshmen typically make the team and upperclassmen dwindle.

I don't think it is a sign that the underclassmen are superior in talent. I think the majority of coaches look much harder at where the senior is. In their minds there is a certain skillset a senior should have to get the reps. If it is not there, it becomes a time value issue. There is just too little time to get them to that level.

Just another way to look at it. I don't think it is indicative of the underclassmen showing more promise as much as a judgement call on the progress of an upperclassmen and who you want to get the reps.

Another example is our high school golf team. They make cuts depending on your golf scores.

Freshman need to be under 130
Soph under 120
Junior under 110
and seniors actually need to be under 90

As a senior you are typically no longer eligible in most sports to play JV anymore. You are either varsity level and will contribute there or it's probably best to focus on building the JV kids.