From the Super Mario Wiki
In Paper Mario: The Thousand-Year Door, every battle is performed on a stage in front of the Audience. They can either be allies or enemies during the battles. The Audience appears in the bottom of the screen, giving Mario SP when he attacks enemies, except when they are made up of Dull Bones. SP is used to refill Mario's Star Power which he needs to use Crystal Star moves.
Audience members aren't merely there to watch, however. Some will interact with the combatants or other members. Additionally, bosses such as Hooktail may use the members as a power source, restoring HP upon eating the members. Magnus Von Grapple 2.0 will even suck up members of the Audience and launch them at Mario and his partners.
The Audience may also throw objects at Mario. It can either be an item that will assist him or injure him. The items that will aid Mario can range from one Coin to items such as the Boo's Sheet. Even powerful items such as Jammin' Jellies can be received, albeit rarely. In any case, if an item is thrown onstage and his inventory is full, the item will simply fall on the stage and disappear. The items that will hurt him range from rocks to crushed soda cans, never doing more than a few points of damage. In either case, a warning will flash before an Audience member is about to throw something at Mario. The player has a few seconds to press to attack the offending member and have them temporarily flee the theater. Alternatively, the player can choose to do nothing to receive the item. The warning does not differentiate between good and bad items, so it is possible to attack an Audience member offering a helpful item. When this happens, not only will this member flee, but several others will as well, but it is temporary. The player can also attack the Audience member while the object has already been thrown. If the item is harmful, the Mario can also switch places with his partner just before the item hits him, successfully dodging the item.
The maximum capacity of the Audience depends on Mario's level. The bigger the crowd, the more Star Power he and his party can restore each turn. Mario rises one rank every ten levels, beginning the game with the Rising Star level.
The different ranks also introduce changes to the stage itself, including a larger auditorium in general and more special effects that may occur during battle, listed below.
Getting a Shine Sprite "Bingo!" will cause every seat in the Audience to fill. Any other "Bingo!" with the exception of the Poison Mushroom one will fill half the capacity of the crowd. If three Poison Mushrooms are matched, every Audience member will run away and Mario and his current partners' HP, FP, and SP will be cut in half. Players can always attract Audience members again by doing well in the battle, and the next battle will always have a new crowd with other characters and usually the same species of characters.
In Super Paper Mario, an Audience of sorts will appear whenever Mario or another playable character attacks an enemy and does a Stylish Move, which is done by shaking the Wii Remote when stomping on an enemy. They appear along the edges of the screen as paper cutouts. This approval of the Audience gives the player a higher score than if they have just jumped on an enemy. The crowd in this game only has a handful of species from the previous game, taking out most of the species.
Characters in the audience
Paper Mario: The Thousand Year Door
In this game, characters will not appear in the Audience until the Chapter they're introduced in. For example, Punis will not appear until Chapter 2, Bulky Bob-ombs will not appear until Chapter 5 (with the exception of the Macho Grubba fight), and so on. The only exception is inside the Pit of 100 Trials, where all possible types of members can appear in the lower floors. Upon returning to previous areas, the battles there can still only have the types of Audience members they originally had - for example, the lone Spiky Goomba in Rogueport Sewers can only ever have Toads, Goombas, Shy Guys, and/or Luigi in its battles' audiences.
Super Paper Mario