Ecclesiastes 4:9-10 (New International Version, ©2010)
9 Two are better than one,
because they have a good return for their labor:
10 If either of them falls down,
one can help the other up.
But pity anyone who falls
and has no one to help them up.
So overall I'm a big fan of collaboration for writing, though it can be challenging, and it doesn't always work well.
You could argue that almost all great books are a collaboration of some sort, as pretty much every writer needs an editor. And if you're writing to be published, your best bet very well may be to find at least one or two people to critique it--or at the VERY least, to have a couple people look it over and point out your glaring inconsistencies and errors. In the old days, editors used to do all those kind of things for you (in fact, at the Tucson Festival of Books this year, I heard an "old-school" editor from I believe what used to be Tor Books say he did substantial work for his authors). But nowadays, I've heard most publishers expect books to be polished when they receive them.
As to how many critique partners you need, where to find them, etc., that's a matter of debate, so we'll avoid that for now.
The point is, when you work with someone else, the end product should be stronger (or if not, then it should be done faster, at least). If it's not, you shouldn't be working with that person.
But when most people think of collaboration when it comes to writing, I think they imagine writing with a partner.
I wrote a novel with a writing partner, Maggie Phillippi (tentative title The Kinyn Chronicles: The Healer and the Pirate). There are some challenges, but collaberating was overall a great thing. We wrote together, primarily in real-time using a free online word processor. The only truly painful part there is trying to bring it back into Word format, and acceptable manuscript format, now that we're done with it--ugh!
Some people have one partner write one character's point of view and the other write the other character's point of view. (In most novels, each scene should be filtered through a specific character's viewpoint. The exception is omniscient POV, which frankly I can't pull off.) I'd say you'd need an outline to pull that off. (Outlines are probably always useful in writing, but so far I haven't been terribly successful using them.)
How we wrote, I tended to write one character's dialogue/reactions more, and Maggie tended to write another character a little more--but we each wrote as we went, and that worked for us. We wrote a whole draft from a story we already had more or less in mind. Then we did substantial edits (arguably a rewrite), and now we're going through getting it critiqued.
Some common challenges I've heard are common to collaboration:
*How is the work split?
*How is the money split?
*Whose name comes first?
*Who gets the last "edit" (the last word when the story goes to the editor)?
*If one of you tires of the project, what happens?
I've read that it's best to get SOME sort of contract signed between the two of you, just in case the worst should happen and you have a falling-out (or God forbid, one of you dies!). Ideally some sort of contract, of course; that little piece of paper probably won't do much good if you have a serious falling-out.
For more ideas, see http://www.writing-world.com/rights/collaboration.shtml
I've been to a couple different panels with authors on collaboration, so I should have some more notes from them next Monday. EDIT: Here's the link!