The rules for what locations/checks can be reached in what situations and with what items are painstakingly encoded in a machine readable format: https://github.com/OoTRandomizer/OoT-Randomizer/tree/Dev/dat...

I don't know the specifics of the OoTR algorithm but in general they work by considering a set of items which are currently "available", and then progressively picking a random item to place only in locations which are reachable with that current set of available items (which is expanded with each placement).