This is a very cool mechanic designed to get around one of D&D's perennial problems, the single well-equipped fighter in plate armor who can't be harmed by an entire army of mooks 'cause no single one of them can do him any real damage. If you're inside a mob, you take damage, no matter how ridiculous your AC. (It also provides rules on how to fight your way out of a mob, or even just to gradually hack your way through it, "killing" the mob.) All in all, it's a very elegant solution. It's also a great way to make your high-level heroes afraid of a horde of goblins again. ;)
Well, in the next adventure of my D&D campaign, at the risk of posting spoilers, there will be a mob scene -- and what's more, it will be a mob of creatures that already have another template applied. So to create the mob, you apply the first template to an individual creature, then apply the "mob" template to the new creature.
Mmm, crunchy math. :d
Fortunately for me, someone has done the writeup for me already -- I'm getting this mob from a published adventure. But in order to acquaint myself with how it works, I've transcribed the mob line-for-line to my notes, and reverse-engineered the thought process behind it. I've gotta extend my kudos to the author of this adventure for including it ... it's a classic moment and a very elegant way of handling it. Their Geek Fu is very strong!