Does it also take into account which Process a particular thread belong to? Otherwise, it seems too easy for a process to hog all the CPU by creating more threads.
Wrong question. Consider two jobs that are trying to solve the exact same problem by doing the same work and are perfectly identical except for one thing -- one uses dozens of threads, the other uses dozens of processes. Why should the one that uses dozens of processes get more CPU time than the one that uses dozens of threads?
Your notion of fairness is not really a sensible one.
Instead, scheduling is more designed around trying to get as much work done as possible per unit time. The assumption is that everything the computer is doing is useful and it benefits competing tasks to have other tasks competing with them finish as quickly as possible too.
This is actually all you need the vast majority of the time. But occasionally you have special situations where this doesn't work. One is ultra-high-priority tasks like keeping video or audio flowing or keeping a user interface responsive. Another is ultra-low-priority tasks where there's an enormous amount of work you want done and you don't want the system to be slow for a long time while you're working on it. Priorities are used for this, and generally the system allows higher-priority threads to interrupt lower-priority ones to keep responsiveness.