It's based on your progress in the skill tree, the accuracy of your answers, and how often you practice on Duolingo. I don't know the exact equation, but those are the main factors it takes into account, and if you go a long time without practicing, your fluency can decline just like your memory of vocabulary words likely will.

The fluency on DL caps at about 50-60% because you can't achieve full fluency using DL alone.