That is one of the most mis-used verses. We all make judgements on people all day long, time and time again. Example: Your child wants to hang out with kids that you know are dopers. You judge them as "bad" and tell your child, "You are not hanging out with those kids, they are not good,..." Some "sleasy" looking guy comes to your house and wants to take your daughter out on a date. You "judge" him and tell your daughter, "You are NOT going on a date with that boy. He is not a 'good' boy". And on and on...
I'm afraid you are the one misinterpreting this verse. We make decisions all day long, of course, and rightfully so, but I think the verse means that we should not condemn or punish others with those decisions.