there are prescribed ways to set speed limits that are backed up by years of research and experience. And those methods arev reevaluated and updated as new data and technology are available. Often times cities/counties don't have the resources or patience to conduct an actual engineering study, so they do it based on something like what your FIL describes.

For a long time speed limits were set primarily based on the 85th percentile of speeds observed in the roadway. The industry is slowly starting to move away from this. I'm the last few years UDOT developed a new speed limit policy that puts more emphasis on roadway context, functional classification, and a host of other factors.

I can confirm, however, that roads are designed for a particular speed (the design speed) with the intent that the speed limit will be posted at 5 mph below that.