Magnetic relaxation switching (MRSw) assays that employ target-induced aggregation (or disaggregation) of magnetic nanoparticles (MNPs) can be used to detect a wide range of biomolecules. The precise working mechanisms, however, remain poorly understood, often leading to confounding interpretation. We herein present a systematic and comprehensive characterization of MRSw sensing. By using different types of MNPs with varying physical properties, we analyzed the nature and transverse relaxation modes for MRSw detection. The study found that clustered MNPs are universally in a diffusion-limited fractal state (dimension of ~2.4). Importantly, a new model for transverse relaxation was constructed that accurately recapitulates observed MRSw phenomena and predicts the MRSw detection sensitivities and dynamic ranges.