Considering Public Relations is a practice that corporates and organizations are willing to shell out hundreds of thoushands of dollars for, it is rather disappointing how little this industry is understood. I am new to this work and am just about starting to get a hang of it myself. Here is an effort to create a more wholesome understanding of the field.
Wikepedia defines Public relations as what is used to build rapport with employees, customers, investors, voters, or the general public. Almost any organization that has a stake in how it is portrayed in the public arena employs some level of public relations. There are a number of public relations disciplines falling under the banner of corporate communications, such as analyst relations, media relations, investor relations, internal communications and labor relations. Most of them include the aspect of peer review to get liability. Some other aspects of Public Relations include:
Financial public relations – providing information mainly to business reporters
Consumer/lifestyle public relations – gaining publicity for a particular product or service, rather than using advertising
Crisis public relations – responding to negative accusations or information
Industry relations – providing information to trade bodies
Government relations – engaging government departments to influence policymaking

Then there is the Interactive Public Relations, or interactive PR, which is the use of Internet tools and technologies such as search engines, Web 2.0 social bookmarking, new media relations, blogging and social media marketing. Interactive PR allows companies and organizations to disseminate information without relying solely on mainstream publications and communicate directly with the public, customers and prospects.

Per the 1982 definition of the ‘Public Relations Society of America’ (PRSA), “Public relations helps an organization and its publics adapt mutually to each other.”
This too seems a bit dated and jaded to me now, as a lot has happened since 1982.
I think today PR is about sustained meaningful value-added interactions with your customers, leading to customer loyalty, retention; and evntually converting your customers to your marketers. Atleast this I see to be the end result of PR.
I am still a beginner and this definition will constantly evolve for me, as my understanding of the topic evolves.