How is geological time divided into units?
The divisions in the geologic time scale have evolved over time.
Its origins can be traced back to Nicolaus Steno in 1669 described two basic geologic principles. 


The first stated that sedimentary rocks are laid down in a horizontal manner.
The second stated that younger rock units were deposited on top of older rock units. 


Work by James Hutton, Charles Lyell and William Smith helped define "principle of uniformitarianism". This work led to definitions in the Mesozoic and Paleozoic eons in Europe and Great Britain.

The Mesozoic and Paleozoic eons helped define the extinction events reflected in the fossil record. It was these correlations that led to the discovery of the extinction events and not the other way around.

Radiometric dating based on the work of Clair Patterson added absolute ages to the time scale.

Over time, the process of grouping together or splitting apart rock units  has grown more sophisticated as better dating techniques have been introduced and more data from mapped rock outcrops have been collected analysed.

References:

http://www.ucmp.berkeley.edu/exhibit/histgeoscale.html

http://www.sepmstrata.org/page.aspx?pageid=22

http://evolution.berkeley.edu/history/radiometric2.shtml