Demo parties are events in which demo enthusiasts and other sceners meet. They started in the 80's at the time there were not very much people on the demo scene. In fact they were originally called "copy parties". The name came from the fact that they were mainly organized for the sceners to meet one another and to copy the latest wares. As time passed and copy parties got little too much publicity, it was time for those who were more interested in demos to arrange their own meetings, namely demo parties. As you might guess the name did not change the nature of the events that much, but at least demos were now much more in focus.
In those days parties were usually organized by a little group of friends and they were not very big happenings. Although not big, they had certainly their own spirit. Nowadays demo parties are mainly very big events which are organized carefully. Their nature has changed pretty much towards a mass event. They are even sponsored by the big computer companies and retailers. But because of this, the demo competitions have become more intense, as the prize moneys have raised.
The main event of a demo party is of course the demo competition. In it demo groups compete for the glory and for the prize money. Participating demos must not have been released before and they must be left to the organizers within the given deadline. The actual demo competition usually takes place at last night. The demos are shown in a big screen for the audience, who can the vote for their favourite demos. Based on the votes, the winning demos are decided. There are different categories for all machine platforms and usually an open competition where there is no limits on the machine. In the latter case the machine used must be provided by the authors of the demo, if one is not available on the behalf of the organizers.
There have been many good parties and some of them are presented in the subsection "demo parties" of this site. Go and read more about demo parties from the perspective of Beyond Force.