The term "Beta Reader" originated in computer software. "Beta Testers" and "Beta Readers" were those individuals who reviewed software before its release, to check for bugs, critique ease of use, and basically test it to make sure it's something that should be loosed upon the world. Online fan fiction adopted the term several years ago to refer to volunteer copy and content editors who preview a story and provide critical and constructive feedback to help the author whip a story into shape before it is loosed upon the world.
A beta reader should be someone with a strong grasp of the mechanics of writing, but need not be a writer. However, a certain level of knowledge regarding spelling, grammar, pacing, plotting, and copy and content editing is required in order to truly help a writer edit his or her work before he or she publishes it to a mailing list, newsgroup, fanzine, archive, or website.
Line and content editing are vital, but at the very least, a beta reader should be able to:
For more information about Beta reading, check out:
The Mannerly Art of Critique
The Writer's Corner: Beta Reader Index
Beta Reader HQ
Bedlam: About Writing
FFSupport Mailing List
Beta Unlimited Mailing List