How do grad schools design courses for potential students?
I agree with @aeismail's and @dmckee's answers, but let me add a different spin:

Students are admitted to strong PhD programs not on the basis of how much or what they know, but rather on their potential for successful research.  Every program admits students from all over the world, who may or may not have undergraduate degrees in exactly the same field.  Beyond a few fundamental concepts, it is not reasonable to assume that incoming graduate students have any specific prior knowledge.  

That said, most courses for PhD students are generally taught as if the students have a strong undergraduate background in the same field.  The definition of "strong undergraduate background" depends strongly on the graduate program; the expectations at the top PhD programs are generally extremely high.  More importantly, PhD students in top departments are expected to have the intellectual maturity to recognize and correct weaknesses in their background, even if the missing material is not normally covered in a strong undergraduate program.

Also: Courses are arguably the least important part of any PhD program.