Moderation is effectively hierarchical, with reputation and community elections determining the hierarchy. Moderation on Stack Overflow is performed by more than just ♦ mods, which allows it to scale to such a large user base without a vast army of super users. (Which would create problems with perceived "fighting" amongst moderators)
There's a number of "moderator" tasks that you see on Stack Overflow, e.g.:
- Editing posts
- Tagging posts
- Closing/migrating posts
- Handling some common flags
- Deleting/locking posts
- Deleting user accounts
(This list isn't exclusive, it gives a feel for the approach taken).
All of these tasks, except for the last one can be carried out by "regular", but sufficiently respected users.
For example anyone can suggest an edit, whereas only moderators can delete/edit accounts themselves. (There's a few more things which are only available to developers).
Activities at the top of the list happen more frequently, but have more users able to perform (and authorise) them. Activities at the bottom of the list are pretty rare, but only have a very small pool of people authorised to perform them.
The approach taken thus is allow lots of people to do common, trivial/reversible things. Require consensus on most of these in one way or another, e.g. votes or approval by several users. Have a small, accountable set of people that handle the complex/rare cases. This helps match workloads against available people.
At each level if the person handling it can't fix a problem without making it worse the problem should be deferred to someone who can (usually either a more knowledgeable user for that area at the same level, or a higher level).
meta.SO provides oversight and policy definition for most things.