http://slashdot.org/
Basically the system randomly chooses moderation points to give out to random people. If you get them you can moderate a comment in a thread insightful, trolling, etc.. rate a post up or down, posts start at 1 and can go up to 5 or down to 0.
You can't moderate a discussion you are participating in.
Then they have the meta moderation system, the system choose you to look at someone's moderation action and rate it, if it was good or bad or whatever.
So over time, people that have had their moderation actions meta-moderated as good will get more moderation points given to them, while people who's moderation actions are meta-moderated as bad will get less or none at all eventually.
They probably do something with the meta-moderation as well to refine it.
The system automatically filters for good moderators and filters out the bad ones, and because of the huge user base and the random nature of the points, it seems like a very difficult system to game.