CSS: 100% font size - 100% of what?

My understanding is that when the font is set as follows

body {
  font-size: 100%;
}

the browser will render the font as per the user settings for that browser.

The spec says that % is rendered

relative to parent element's font size

http://www.w3.org/TR/CSS1/#font-size

In this case, I take that to mean what the browser is set to.

The browser default which is something like 16pt for Firefox, You can check by going into Firefox options, clicking the Content tab, and checking the font size. You can do the same for other browsers as well.

I personally like to control the default font size of my websites, so in a CSS file that is included in every page I will set the BODY default, like so:

body {
    font-family: Helvetica, Arial, sans-serif;
    font-size: 14px
}

Now the font-size of all my HTML tags will inherit a font-size of 14px.

Say that I want a all divs to have a font size 10% bigger than body, I simply do:

div {
    font-size: 110%
}

Now any browser that view my pages will autmoatically make all divs 10% bigger than that of the body, which should be something like 15.4px.

If I want the font-size of all div's to be 10% smaller, I do:

div {
    font-size: 90%
}

This will make all divs have a font-size of 12.6px.

Also you should know that since font-size is inherited, that each nested div will decrease in font size by 10%, so:

<div>Outer DIV.
    <div>Inner DIV</div>
</div>

The inner div will have a font-size of 11.34px (90% of 12.6px), which may not have been intended.

This can help in the explanation: http://www.w3.org/TR/2011/REC-CSS2-20110607/syndata.html#value-def-percentage