How does the RTC plan view determine which iterations to present as selections in the "Plan For" context menu?

it should be the iterations in the plans containing timeline that are later in time than the current iteration. (and backlog)

using the default set of releases and iterations, I added another later release, iterations and a backlog iteration. so that they appear like this


then looking at one of the plans, I selected the plan for and get this list


if I select browse, I see this


I created a sub level iteration and it looks like this


but the list in Plan for doesn't change, so, this tells me the algorithm is find all iterations at the same level in the release containing the workitem's current iteration. (or the containing Plan's iteration)

I agree with your observation. current iterations parent and grandparent and siblings of parent.