James Fallows, national correspondent for The Atlantic and a blogging resident of Beijing's Chaoyang District, has written a good outline of how China's online filtering apparatus works: "The Connection Has Been Reset."
Aside from the fact that The Atlantic has made the lovely choice of freeing its content, the news to me was that China's filtering system is working in reverse:
Xiao Qiang, an expert on Chinese media at the University of California at Berkeley journalism school, told me that the authorities have recently begun applying this kind of filtering in reverse. As Chinese-speaking people outside the country, perhaps academics or exiled dissidents, look for data on Chinese sites--say, public-health figures or news about a local protest--the GFW computers can monitor what they're asking for and censor what they find.
The article, which was briefly available here but is now apparently offline for a while, also makes the argument that full-bore IP and domain blocks may gradually fall off in favor of more refined filtering of actual content.