The theory behind Prediction Markets is that the crowd has a wisdom that sometimes might give interesting results if compared with the wisdom of the experts.
Here is the wikipedia definition:
Prediction markets […] are speculative markets created for the purpose of making predictions. The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter.
People who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. Evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.
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