The Seismic Design Values (Spectral Values, Ss and S1) are based on a building with an assummed 5% of critical damping. Some buildings are designed with higher damping levels (say 10%), so that the building dissipates more of the seismic energy from an EQ, resulting in a reduction of Spectral Values, Ss and S1.
Critical damping means that a system will not vibrate at all, on the other hand 0% damping means that the system will keep on vibrating without any reduction in the amplitude or frequency. 5% damping means that the damping is 5% of critical damping. 5% damping is low but still should reduce the amplitude of displacement with time of a system undergoing vibration. Hope this helps.
This has been in the seismic design code for sometime now. I believe, the value is selected from experience and testing based on material and structural elastic and post elastic behavior.
5% is reasonable for many structures, as most will have more than 5% dampening except when empty or under construction.
It is an example of codified engineering judgement. I was fortunate enough to attend a lecture by the famous Prof. Tom Paulay where he openly admitted that the 0.6 term many codes still have in the base shear formula was added because the loads calculated when they first came up with the process for modern seismic design simply seemed too high...
So they just reduced them. *smiles*
The reality is that if the system is well designed with inherent ductility the the right places and over designed in areas of criticality, by which I mean a proper Capacity Design solution like we only rarely see in North America, the actual input load is much less meaningful than the system behaviour. That's pretty fortunate too, as I have yet to see any seismic record that looks like a code model loading! Lol....