I learned this exercise from my colleague Richard Homan who uses it in his acting courses. We also used it extensively in our co-taught course The Psychology of Improvisation. It is basically an improvisation/role-playing technique that can be applied creatively to a variety of topics. Two or more students begin role-playing a situation in front of the class. They may be provided with a brief sketch to start them off (e.g., "one of you is a schizophrenic patient in psychotherapy, and the other is the therapist"). They improvise the scene, and at any moment anyone in the class (including the teacher) can say "FREEZE." The role-players must stop where they are. Then the person who froze the action gets up, taps one of the role-players on the shoulder, and takes his or her place in the scene. The new role player now resumes the scene by talking first, but can introduce any new dialogue or action he or she wishes. The new role player can modify the scene slightly, take it in a very different direction, or completely change the topic of the scene. The role players continue to improvise the new scene until someone else from the class says "FREEZE" and steps in to alter the scene once again. This process of improvising, freezing, and altering the scene continues until as many people as possible have taken turns participating in the role play (people can enter the scene more than once if they so choose).
The result is a fascinating exploration of the topic at hand. Essentially, it is a type of group "free association" - not unlike the free association techniques used in dream interpretation. This exercise works best in small classes (approx. 5-20) where students feel comfortable with each other.