Here is a superb article that classifies, explains, and lists examples of how the wisdom of crowds can be harnessed. The review breaks the field down into three categories; content creation (collaborartive editing), organization (tagging, linking, voting), and prediction (markets).
It even lists the potential pitfalls to the general principle of “two heads are better than one”; like mass hysteria.
The “wisdom of crowds” is a popular web 2.0 buzzword, popularized by James Surowiecki’s book of the same name. At its most basic, the term means that two heads are better than one, and that still more heads will yield even better results.