In Australia AV is called PV (Preferential Voting), the system whereby one winner is elected from a pool of candidates. If no candidate receives a majority of first-preference votes (that is, more voters rank them as number one than all the rest combined), the second-preference votes of the candidate with fewest votes are distributed among the remaining candidates, and that candidate is eliminated from the contest. This is repeated, if necessary, until someone gets more than 50 per cent. The voter does not have to keep voting at each stage of this process because he or she has ranked all the candidates in order of preference when voting in the first place. These preferences are used to 'transfer' the votes of the candidate who was the first preference originally, but who is now eliminated, to the voter's second choice, and so on. Since a voter only votes once, he or she is not able to use the results of the first round to influence how they will vote in the second.
The Australian system is a Full Preferential Voting (FPV) system. This means the voter has to rank all the candidates on the ballot paper, otherwise the ballot paper is discounted. With Optional Preferential Voting (OPV), the voter may just select one candidate on the list (but still put a 1 rather than a cross). FPV is used in federal elections in Australia but many state elections use OPV. The referendum in the UK in a couple of days is a proposal for the Optional variety.
Australia became a nation of federated states in 1901. Initially it had a First-past-the-post (FPTP) electoral system, but this was replaced by a preferential system for the House of Representatives in 1918, and this has remained in place ever since. Australia elects its senators to the upper house using a different system again, but of course the UK electorate has no say whatsoever in who sits in the House of Lords.
Not only do Australians have to rank all the candidates on their ballot paper, voting itself is compulsory. You can't make a protest by opting out, therefore, or stay at home if it's raining or a bit cold. Some protest voters submit a blank ballot paper or deface it: these are known as informal votes: others just list numbers chronologically down the page against any old name, and this is called a donkey vote. Of course, you can never be sure that someone doesn't want to vote for the candidates in that order; or that they just don't understand the system. It is estimated that the number of donkey votes may be 2 per cent. (In 1984, electoral reform put an end to the alphabetical listing of candidates, donkey voting obviously favouring Jacinta Anderson over Tarron Zorba.)
In Australia there are only two major political parties† and AV is not seen as favouring one or other of them. In the UK, the reason it would favour the third party, the Liberal Democrats, is that they come second in a significant number of seats under the current FPTP system. If the leading candidate falls quite a way short of 50 per cent*, then the LibDems might pick up enough votes from second-preference Labour or Tory voters to win the seat. Millions of people vote for the LibDems in every election, yet the party picks up relatively few seats in parliament.
It is claimed AV does away with the need for tactical voting, which has long been practised in the UK, since you can vote for your first-choice candidate without fear of it being a wasted vote. For years I voted tactically in Tory heartland Surrey: it never succeeded in ousting the candidate I really really didn't want to represent me in Westminster and I never voted with my heart, so it was a doubly frustrating experience.
Despite claims to the contrary by those campaigning against AV in the UK, it does not make it easier for extreme parties to gain inroads, since they are unlikely to pick up as many second-preference votes as mainstream parties. Even at what might be considered the high point of her political career, anti-multiculturalist** Pauline Hanson's One Nation party only won 11 out of 89 seats in the Queensland state elections in 1998. Queensland is considered to have a mind of its own that may well be out of kilter with the other states in the Commonwealth (of Australia), and probably produces more than its fair share of political mavericks.
Back in the UK, if you're still in any doubt about how to vote in Thursday's referendum, please visit www.electoral-reform.org.uk and www.yestofairervotes.org to help you make the right decision.
† There is also the National Party, formerly the Country Party, which is traditionally the minor party in a coalition with the Liberal Party, except in Queensland, where greater support for its 'countrymindedness' has led recently to the foundation of the Liberal National Party of Queensland
* According to the Electoral Reform Society, two out of three MPs elected in 2010 did not have majority support, the highest figure in British political history
** Hanson's suggestion that special government assistance for Aboriginal people should be abolished brought her to prominence