i read an article about his "craft" once. they called his "craft" a name (something like, "dry reading"), which escapes me at the moment, but apparently harry houdini would perform something like it to show believers that the "medium" was actually conning them.
anyway, from what i remember, apparently audience members fill out a form before the show, and there are mics hidden in the seats. there are also "plants" in the audience, who are there specifically to strike up conversation about loved ones who have passed away.
then behind the scenes, john will go through the applications, listen in to some of the conversations, and go from there. he'll go outside, point to a particular section in the audience and say, "okay, i'm getting something for someone whose name is like J, M. Jamie? James?" and of course, Jamie would look all shocked and say, "me? me?" then john will throw out a few predictions and his questions are such that they start out more general, then as the audience member helps him by providing more info, it becomes more specific until it looks good.
also, what they don't show you are the times when john completely misreads the audience member and is completely stumped. apparently this happens often.
anyway, i don't remember if i found the article on the web or if i read it in print, but i'll keep an eye out. in any case, i've always believed that our dead loved ones can contact us, but as for having a medium telling you what they are saying, i'm not so sure about...