Party games in general are simply any games where a semi-large group can participate, generally 4 to 12 or so -- the number who would appear at a personal party at someone's house. This discusses roleplaying party games: where there is a set of fictional characters -- each with one player. The distinction of a party game is that it can be done with relatively little setup and preparation. Typically, all players are equal: i.e. there is no moderator or game-master. These are similar to live action RPGs -- with the difference being that the players stay in the same room.
This restriction means that the characters can only interact verbally or within narrowly-defined limits. Characters can only act in ways that are unambiguously resolvable within the rules.
One example of such a game is a murder-mystery game where the players role-play characters who, by discussion of the known clues, can figure out which among them is the murderer. There is a freeware game of this sort on the web site ( The Business of Murder). Another example would be "The Extraordinary Adventures of Baron Munchausen", from Hogshead Games.