From the Wikipedia article at http://en.wikipedia.org/wiki/Participatory_democracy
"Participatory democracy is a deliberative dialog and decision making process which hears all voices and diverse perspectives to enact meaningful change.
Ideally, it would be an equitable process embarked upon by a group empowered with decision-making authority, surfacing a deeper understanding of issues, and is consolidated around a common purpose, forging a collective decision out of individual interests.
Participatory democracy is inclusive, requires practice and reflection, accepts and absorbs conflict, actively addresses dissent, and pays attention to those who speak softly or who are on the margins." (http://en.wikipedia.org/wiki/Participatory_democracy)
Socialism, direct democracy and delegated democracy
"35. We have said that the society we want to build – which we have called 21st-century socialism — seeks to create the conditions for full human development in a cooperative society and that full human development can only be achieved through practice, that is, people transform, or fully develop themselves at the same time as they struggle to change their circumstances, to create the conditions for the new cooperative society, thereby overcoming the inherited culture and practicing new values such as solidarity and respect for differences.
36. As such, democratic participation, popular protagonism, is one of the essential features of socialism.
37. That is why Alfredo Maneiro – a Venezuelan intellectual and political leader – maintained that it was not simply about injecting bourgeois democracy with a social content, by placing emphasis on the resolution of social problems: food, health, education, etc. Rather, the focus had to be on transforming the inherited form of democracy, creating spaces that enabled people to struggle to change their circumstances, while in the process transforming themselves.
38. It is not the same, said Maneiro, for a community to win a footbridge having organized themselves and fought for it, than for them to receive the footbridge as a gift from the state. The paternalism of the state is incompatible with popular protagonism. It ends up transforming people into beggars. It is necessary to go from a culture based on citizens that beg towards a culture based on citizens that conquer, that make decisions, that execute and control, that self-organize, that self-govern. We have to move from a government for the people to the self-government of the people, where the people really take power, as Aristóbulo Istúriz said.
39. This participatory and protagonistic democracy is not a democracy solely for the elites, as bourgeois representative democracy is; it is a democracy for the great majority of the people. Within it, the common citizen can participate in a variety of manners, not only in formulating demands and supervision, but fundamentally in making decisions and ensuring they are carried out.
40. As Pablo Anzalone, a Uruguayan political leader said, it is about constructing democratic processes where the great popular majorities are incorporating into the political arena, both within institutions as well as in practice. This requires a reformulation of the idea of politics, recuperating and emphasizing participatory mechanisms from the local to the national level." (http://ouleft.sp-mesolite.tilted.net/?p=1023)
Direct democracy and delegated democracy
47. We also have to understand that direct democracy, that is, democracy whereby people debate and decide in assemblies, is not the only acceptable form of democracy. Direct democracy is one form of democracy, undoubtedly the richest and most protagonistic form, but it has its limits.
48. The direct democracy is without a doubt the richest and protagonistic type of democracy, but she has limits. For everyone to be able to fully participate, the size of the group cannot be excessively large. It is difficult to imagine direct municipal democracy in a municipality with 200,000 people, much less direct democracy in large capital cities made up of millions of people.
49. Democratic participation cannot remain limited to experiences on a small scale; it has to transcend the community, the factory, the classroom: it must go from local levels of power all the way to the national level. The same must occur in a factory: along with workers councils in each workshop or sector, there must be workers councils in each factory, and each branch of industry; the same must occur in centers of study (by classroom, faculty, university, and across all universities).
50. We have to create a system that allows citizens to participate in all decision-making processes, concerning specific and general issues that affect their lives, and this requires establishing some form of delegation of power that does not reproduce the limits and deformation inherent in classic bourgeois representative politics.
51. In this regards, revolutionary Venezuela has taken transcendental steps which mark a new high-water in Latin American political history. They have abolished the classic idea of political representation in order to begin creating a political system that combines direct democracy with delegation or voceria (spokespeople), as they have rightly referred to it. There, those that are elected to take part in the communal council are called voceros (spokespeople) because they are the voice of the community, and when they cease to be so, because the community no longer feels that they are adequately transmitting the ideas and decisions of the community, these people can and should be recalled.
52. In short, it is about building a new political system of popular power or self-government that combines direct democracy on a small scale with a whole system of assemblies of voceros or delegates at different levels, which should elect, orientate and control the different organs of government.
53. A correct critique of bourgeois representative democracy should not lead us to reject all types of representation. What we reject is that democracy which is limited to five minutes of voting every few years; that elitist democracy that made invisible important sectors of the population who today are beginning to appear on the political scene in different parts of the world, expressing an open or implicit critique of the current political system.
54. If we believe that the big decisions have to be made by the people, we have to be coherent and point out how millions of people, that live hundreds of kilometers away from each other, are going to make decisions. I see no other alternative than delegating some people to represent the positions of their communities at higher levels. Moreover, we have to be clear that if they – in representation of their base – do not make the decisions, others will.
55. Denying the possibility of delegation is denying the possibility of participation in decision-making on issues that transcend our local reality (community, workplace, classroom).
56. Those that today are made invisible will not become visible unless they themselves make their presence felt. This was the error committed by the Zapatistas who, despite having made themselves visible in 1994 through their armed insurrection, have subsequently marginalized themselves from national politics and have to a certain extent become invisible once again.
57. Given this, it is possible to conclude that we need to create a political system of representation, or delegation, but one that is very different to the bourgeois democratic system. The latter views representatives as professional politicians and therefore believes they should be remunerated for their role; at the same time, their mandate is exclusively a personal one, which does not reflect their voters, who they only reach out to at election time. The alternate system of delegation or voceria is the anti-thesis of this conception and practice: elected representatives, delegates or voceros must remain tied to their base, which in turn must supervise and guide the work of their delegate and prevent their bureaucratization.
58. They are not given a blank check for a certain period of time like bourgeois representatives are, rather they must be guided by the decisions and orientations of their electors who should evaluate their performance in accordance with the tasks they have been assigned. This is what the Zapatistas meant by their idea of “governing by obeying.”
59. Here we have to clarify that this is not the same as saying that their mandate is binding. They are not robots that receive messages and simply transmit them; they are responsible and creative people that, faced with the realities of other communities, must be able to modify the mandate they have received once they have seen, for example, that a neighboring community is in a situation worse off than their own and should therefore be supported rather than simply defending ones own community. As they must account for their mandate in their community, the delegate will have to return home and explain their decision. They will have to carry out a pedagogical labor among the community so that it is understood why, based on reasons of solidarity that justified the decision taken, the delegate chose to not comply with the mandate that was given to them. If the community is not convinced, they have the right to revoke the delegate because the delegate no longer represents their wishes. In this case, it could be said that the community has yet to mature and take onboard the value of solidarity, and therefore do not deserve a delegate that reflects those values. Let’s recall that old saying: the people get the government they deserve. We could say the same about this community.
60. In some ways, Bolivian Vice-President Álvaro García Linera, explains this using other words, in this case referring to those governing at the national level: “To govern by obeying is to affirm every day that the sovereign is not the state, that the sovereign is the people who do not express themselves only every five years by the vote, but rather they express themselves, they speak, they put forward each day their needs, expectations and collective requirements. What is required of the ruler is to synthesize and to unite, because the voices of the people can be discordant. The people are not something homogeneous. No sir! There are social classes, there are identities, there are regions. The people are very diverse. The role of those in government is not to substitute for the people but to harmonize the voices of the people, only to synthesize in a sense their concerns. But that does not mean that they substitutes for the people. To govern by obeying is that: the sovereign is the people and the leader is simply a unifier of ideas, someone who articulates their needs, and nothing else.”
61. In order to comply with their role as vocero, these people should be elected from their workplace or community and, as we said above, can be recalled once they have lost the confidence of their electorate.
62. Moreover, they should not receive a salary, but instead continue working as they had done until then. And if it is necessary at certain times for them to dedicate themselves full-time to community work, it should be the community – via their own resources – which pays them a certain sum of money that allows the delegate to cover their basic living costs. In this way, it would be even clearer why the delegate should report back to the community. This also avoids transforming community work into bureaucratic tasks that are carried out simply to obtain a salary.
63. Finally, some communities have taken a healthy approach towards rotating cadres so as to avoid a situation whereby certain people eternalize themselves in certain roles, impeding the ability of others in the community to learn how to carry those tasks.
64. And, of course, it is very important that delegates are correctly selected. Once again, the Venezuelan experience has provided us with some important insights. There, we have seen just how important it is that the election of delegates is carried out properly, with the people knowing the candidates, as they have seen them in actions and are not just reliant on what the candidates have to say. For example, the experience whereby, before voting, candidates who self-nominate themselves for election to the communal council collaborate in carrying out a socio-economic and demographic census in their community has been very positive, as through the process they are obliged to contact each family in the community. The elaboration of a brief history of the community, together with the people, has also been useful, allowing them to become more acquainted with the reality they have to deal with. Another constructive activity has been the organization of a participatory diagnostic which allows them to know the real necessities and dreams of the people that live in the community. It is therefore not enough to be able to deliver beautiful speeches to be elected; the people in the community have seen just how dedicated each candidate is to their community. This helps avoid electing people that are simply looking of a launching pad for their own political career.
65. Up to this point we have talked about participatory democracy at the local level and the system of voceria, but – as we have already noted – this should not be the only form of peoples’ political participation. The Bolivian investigator, Luis Tapia, has an interesting proposal that would further refine political participation and deepen democracy. He proposes the creation of public political spaces to deliberate over issues of general interest.
66. These would be political spaces for direct democratic participation, not only over local and municipal issues (which is what they tend to be for), but also national or plurinational issues such as how to advance towards a policy of economic development that respects nature and the interests of indigenous communities, or how to tackle crime. Living in remote areas should not be an impediment to participating in discussions on issues of national interest.
67. In a similar fashion, the 15M movement in Madrid and the Chilean student movement have used public spaces for debates, and have transformed themselves into a mass process of popular self-education.
68. But it is not enough to discuss national problems at the local level. The results of these local discussions must travel upwards, ratifying once again the need to establish a system of delegation or voceria.
69. Moreover, the agenda for debates in the national legislative body – a new type of parliament – must be public and a focus of discussion in each one of these spaces of direct democracy, which in turn feed into the discussions happening in parliament. 
70. And alongside the system of collective construction of opinions and policies, where those that are the most committed tend to participate, we should not rule out the use of mechanisms for carrying out popular, nation-wide consultation, as already occurs in some Latin American countries. However, we must be clear that these mechanisms for consultation are based on individual acts and lack the richness of collective discussions, which is why they should be seen as complementary instruments, not ones that can substitute for collective discussions.
71. I believe that all this leads us to conclude that the democratic system we want to build has to combine direct democracy and indirect or delegated democracy." (http://ouleft.sp-mesolite.tilted.net/?p=1023)
Key Books to Read
Participatory Democracy: Prospects for Democratizing Democracy. Edited by Dimitrios Roussopoulos and C. George Benello. New Edition. Montréal, New York: Black Rose Books, 2005.
“This wide-ranging collection probes the historical roots of participatory democracy in our political culture, analyzes its application to the problems of modern society, and explores the possible forms it might take on every level of society from the work place, to the community, to the nation at large. Part II, ‘The Politics of Participatory Democracy,’ covers Porto Alegre, Montreal, the new Urban ecology, and direct democracy." (http://escapingthematrix.org/resources.html)
See also: Direct Democracy
Bibliography, recommended by Tiago Peixoto:
"David Lazer is the co-author of two of these papers. If you don’t know it already, Stuart Shulman’s work is definitely worth checking out. Thamy Pogrebinschi is probably one of the people to look out for in the coming years in the field of Participatory Democracy." 
- Pogrebinschi, Thamy, The Squared Circle of Participatory Democracy: Scaling-up Deliberation to the National Level (2012). APSA 2012 Annual Meeting Paper. 
A lot of good videos about participatory democracy including participatory budgeting from http://www.vitalizing-democracy.org/
- British Columbia Citizens' Assembly on Electoral Reform, http://www.youtube.com/watch?v=R80PilHv85g
- Direct Democracy Now, http://www.youtube.com/watch?v=kwPNMyK-z_8
- Geraldton 2029 and Beyond, http://www.youtube.com/watch?v=bXxPk2uwvuk
- Portsmouth Listens, http://www.youtube.com/watch?v=MLvrYbrQjIQ