Google’s Developer Programs Tech Lead, Maile Ohye and Crawl Team, Mehmet Aktuna wrote a detailed blog post on best practices for faceted navigation. Most faceted navigation are on large sites with filters, such as e-commerce sites with a lot of filter options, or large content sites with many filters and so forth.

Here is a picture Google used to describe it:

I am a bit surprised how much Google wants you to block a lot of the navigation, as opposed to using rel=canonical. But maybe I am reading into it too much.

Google explains:

So if you have a huge site with faceted navigation, you should 100% read this blog post.

Forum discussion at WebmasterWorld.