You Let Players Run your Game?
If you're thinking about player content, the most important thing to think about is how much freedom to give your players.
Players will always generate content in every multiplayer game, even if you provide no means to do so. The content they generate for the game might not even be in the game, but it is content.
For example, Quake II didn't support "clans" or other groups of individuals. However, people still created them, renaming their profiles to reflect their association.
Similarly, Everquest had no useful player generated content tools at all. People still created stories, detailed histories, economies, and so forth. These are all player created content, even though they were not particularly enabled by the design of the game.
The question is simple: how much player generated content do you want, and of what kind?
For the sake of simplicity, I'll break it down into three kinds of player generated content, any or all of which you can include:
Social content is players who form lasting bonds of various kinds. Teams, clans, guilds, parties, gatherings, dances - these are all forms of social content. As are marriages, wars, deaths, mentors, and so forth. Also, this type of content will supplant the other forms of content if they are not provided for, creating a vast metagame array of economies, fan art, comics, and so forth.
Recombinatory content is content that relies on the player utilizing a set of rules to create complex and unique game play which influences other players. The most common example is an economy. To some extent, even being able to aquire and equip your character as you see fit also falls under this category. Being able to build your own castles, open shops, and create new unique items all fall into this category.
Generative content is content which, while created with game tools, is not limited by game content. For example, skinning a Quake player mesh. Or being able to create any 3D structure you can imagine. Or being able to import pictures. Or program your robot as you see fit. Technically, naming your character falls into this category, but it's not exactly a heavy hitter.
Most people who think about player content are zealots for either recombinatory content or generative content. The latter produces some fairly serious problems because it allows players to express themselves in ways which may be inappropriate, but the former generally requires the developer to expend a lot more time and money.
Social creations will always contain a fair amount of inappropriate content. At the very least, there's always an undercurrent of people cursing, breaking immersion, and cybering. However, this content is generally seen as a necessary evil and is largely ignored, unlike the assault phalluses you get with generative content.
Essentially, the more expressive the kind of content you provide them tools for, the more your game will contain expressions of that kind. Recombinatory content is not very expressive, so you might end up with cities shaped like pixel-art naked women, but it's hard to be seriously offended by that. On the other hand, allowing them to import any picture they want as their national flag will end up putting a lot of rather dubious nations in your game.
These three kinds of content all have to be treated differently, and what levels of each you include depends largely on your budget for moderators and your stomach for a less-than-fairytale culture.
But they all follow the same basic rules of creation and distribution:
How, when, where.
How Do Players Create?
This is an important question. Which players create is based almost entirely on how easy it is to create. However, the best goods are created by hardcore players who demand hardcore controls - controls that will drive away the more casual players. Since the act of creation is content, this is not a good thing.
This is generally handled by having simple controls that can be turned over into a more expert mode.
Example: Social Content. Games generally feature simple 'channel chat' systems. There's a channel for local, team, guild, shout, etc, etc, etc. By default, some of these channels are on and some of them are off, and you talk on local.
As the player begins to understand the game, he or she learns to talk on other channels, disable the "shout" channel, decipher the long strings of gibberish people spout, and use the handy-dandy friend/ignore lists.
These are more advanced social features. Other advanced social features they are slowly introduced to are things like teaming up, mentoring, simple trading, guilds, corporations, titles, etc.
Most games have this "simple at first, complex as you learn" method for social content. The same system can be applied to the other kinds of content.
Example: Recombinatory Content. Games with recombinatory content allow players to buy equipment at first, but will reward you if you design and/or sell your own creations. Many games are built around this on some level. Some call it "crafting", which is like a half-step in the right direction.
Eve Online allows you to form corporations whose sole purpose is to buy, design, build, and sell things. This PvP economy drives the game, and is one of two examples of extensive recombinatory content. To lure you in, Eve Online allows you to be a consumer and a trader until you feel confident enough to start manufacturing. (Or forever, if you would like.)
The other example is A Tale in the Desert, which allows players to use a vast array of in-game rules and objects to create content in a recombinatory fashion. They actually allow a little more freedom than many designers would feel comfortable with - bordering on generative content at times.
By running a game with a time limit that restarts after it is "complete", they allow players to get in when the techniques and technologies are simple. As time progresses, the recombinatory content grows more and more complex, keeping the hardcore happy.
Also, the extensive costume selections of City of Heroes/Villains is recombinatory content done so that both beginners and advanced players are pleased.
Example: Generative Content. Generative content is still fairly rare. It takes a real devil-may-care attitude to allow generative content due to the problems that arise from copyright infringement and in-game culture shock.
So far, all the examples I've seen of generative content go from "simple" to "extremely complex" in about two seconds. Developing a system which bridges the gap is something many people are interested in.
When do Players Create?
When the players create is as important as how they create. If there is no reason to create, then fewer players will do so.
There are three basic reasons a player will choose to create:
For themselves. Most players love to see their thingie exist, even if few or no other players will ever see it. Without either of the other reasons, this reason will remain. However, this is a pretty weak impulse, and shouldn't be relied on.
For the game. Many players will create specifically for the game response they get. For example, you might invent a new kind of sword that gives you a statistical advantage, or a castle which protects you from other players.
Socially, team-up systems and mentoring systems provide a statistical advantage to socializing. Generally, recombinatory content is entirely about statistical advantages. However, generative content is dangerous to use in this way, because generative content cannot be easily balanced.
For other players. Many players love to get responses on the things they create. Selling goods, releasing a horde of player-eating zombies, performing songs - all of these are content created for other players.
Socially, this would be a guild, story, comic book, etc: anything which is intended to affect lots of players. Recombinatorally, this is mostly economics. However, playgrounds and other social-recombinatorial content also falls into this category. Nearly all good generative content falls into this category, from castles in the sky to walking wangs.
Your duty is to choose what drives you wish your players to follow, and how you can make your rules to gently reward players for creating these various kinds of content.
Where do Players Create?
This is perhaps the most important question of the three. The biggest problem with all kinds of content is the "where". If all your players were good-natured folk, this wouldn't be a problem. But your players aren't. Huge numbers of them will grief other players, whether on purpose or just by being inept and self-centered.
Therefore, nearly all content distribution systems have a method of compartmentalizing content. I call this the "geographic" approach, although it is not necessarily a physical geography.
As a social example, even the "shout" command has a limited range and can be ignored. It is impossible to force your commentary on to anyone more than once, because they'll put you on an ignore list.
As a recombinatory example, balance is a critical issue. One of the most common ways to balance a game is to make it cost significantly more (in gold, supplies, or time) to create a more powerful piece of content. Functionally, the more powerful creations are "smaller" - you can create fifty iron swords for the price of one folded-steel katana. There is a kind of "geography" to it.
As a generative example, the distribution of crap is a problem. This means that you place limits. Usually, these are actually geographical: you can create something on your character's land, but not anywhere else unless specifically allowed. This means you can't really grief anyone except the people right next to you.
There's tons of solutions - it's worth a whole chapter at some point.
Anyhow, when thinking about player content, the questions you have to ask are "what, how, where, and when?"