They're like giant and difficult Dungeons. Bosses are harder, but drop way better loot. Team work is important, as one screw up could cause a wipe.
The leader of a party can convert the group to a raid by clicking the "Convert to Raid" button in the Group window. At this point it becomes a "group of parties" with up to 8 parties, each with 5 characters. The leader of the raid can drag characters between groups to move them to different parties; typically, this is done to achieve some strategic goal such as distributing shamans and paladins to share totems and auras or warriors with rogues for Battle Shout (note that this is no longer needed in current patch).
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