The Panchen Lama is the second highest spiritual figure in Tibetan Buddhism, after the Dalai Lama. At one time the Panchen Lama was a very influential figure in the politics and culture of Tibet. Now he no longer has that role but he's still looked upon as a great sage and spiritual leader. His most important job is to pick the next Dali Lama after the current one passes away.
The Panchen Lama is supposed to be part of a reincarnation lineage that goes back to the original incarnation of the 'Amitabha Buddha' (Meaning the "Great Scholar") a celestial Buddha described in the scriptures of Mahayana Buddhism.
The choosing of the Panchen Lama is a complicated process and the final decision is the duty of the Dali Lama. The process of finding his reincarntion can take several years, utilizing oracles, visions, pilgrimages to holy places and looking for certain signs. When a likely candidate is found, he is given a regiment of tests designed to determine if he is the genuine reincarnation of the Panchen Lama.