This is a good question. I think you will probably see several different answers to this as well. I really rely alot on my experience to determine how competitive a term is. Here are some things to consider
- How good are you? - How many sites are competing for that specific term? - What search engine are you optimizing for? - We talking Organic or paid? - what do the top 5 to 10 sites that show up for that keyword look like? Are they SEO'd? Do they have quality links? Do they have any .edu or .gov links? - How old are the top 5 sites that are listed for that term? - How do the top 5 sites incorporate content into their site? How fresh do you suspect it is? - Of the links that your competitors have, what anchor text are they using?
These are just a few that I'm sure most people look into. Keyword research in my opinion is the #1 most important step in successful SEO or SEM. This is where I spend most of my time when starting on a project or a site. Picking the wrong term can kill you.