You actually can't handle classified data, or derive something from classified data, that doesn't automatically classify the derived work (a report, or some such) at at least the same level. To not do that risks releasing the information and you can actually end up in prison over it, or at the very least lose your job.
So in 99% of the cases it's not like you make a decision to "classify" something. It is by its nature classified.
Think of it this way. You have a friend that tells you via email a secret. This secret can only be known between you and your friend. For example, you are arranging a surprise party for a third friend.
Using this knowledge it is your job to get a birthday cake that has the person's name and age (and a decoration) on it. But the only baker in town is also friends with the birthday friend. You don't want to risk the baker leaking the surprise of the cake to your friend. So you decide to buy a blank cake, and decorate it yourself.
This cake is also classified at the same level of the original information (Classified//only between you and your friend). Because it is derived from the knowledge of the birthday party email).
Now your friend prints off decorations with some party specific information, say a sign or some streamers or something. Those are also classified at the same level.
Suppose there are some other odds and ends that are a result of this email and the party plans. Say a "making of video" for the party etc.
Now let's say you also hire a clown for the party. You only provide the clown the time and place to come and perform, not any other details. Because the clown isn't in on the original secret, the arrangements for the clown and the various transaction documents pertaining to it are at a lower classification level. You might still not want the birthday friend to know that somebody he knows hired a clown on his birthday (a convenient coincidence) so you swear the clown to secrecy.
Even if it gets out and the birthday friend asks the clown directly, the clown has plausible dependability and doesn't know why he was hired, only that he was. So it's not good that your friend finds out, but it doesn't entirely screw up the surprise.
I'm stretching the analogy a bit, but hopefully that makes it clear how knowledge of single piece of information (the email that established the surprise party) can end up producing so many classified documents and how that process happens.