How the allotment logic treats your list
Your choices are processed strictly in the order you rank them, against the merit list for that quota/category. You are allotted the highest choice on your list where a seat is available and your rank qualifies — not necessarily the closest match to your rank.
This means choices should be ordered by genuine preference, not by perceived 'difficulty' — an unrealistic first choice does no harm as long as realistic and safe choices follow it on the list.