http://en.wikipedia.org/wiki/Potemkin_villagePotemkin villages were, purportedly, fake settlements erected at the direction of Russian minister Grigori Aleksandrovich Potemkin to fool Empress Catherine II during her visit to Crimea in 1787. Conventional wisdom has it that Potemkin, who led the Crimean military campaign, had hollow facades of villages constructed along the desolate banks of the Dnieper River in order to impress the monarch and her travel party with the value of her new conquests, thus enhancing his standing in the empress's eyes.
Modern historians, however, consider this scenario of self-serving deception to be, at best, an exaggeration, and quite possibly simply malicious rumors spread by Potemkin's opponents. Potemkin did mount efforts to develop the Crimea and probably directed peasants to spruce up the riverfront in advance of the party bringing the empress by boat to the Crimea. But the tale of elaborate, fake settlements, the glowing fires of which were designed to comfort the monarch and her entourage as they surveyed the barren territory at night, is largely fiction. Potemkin had in fact directed the building of fortresses, ships of the line, and thriving settlements, and the tour – which saw real and significant accomplishments – solidified his power.
So, while "Potemkin village" has come to mean, especially in a political context, any hollow or false construct, physical or figurative, meant to hide an undesirable or potentially damaging situation; the irony is that, in fact, there appears to have been no such thing.
"Potemkin village" has also frequently been used to describe the attempts of the Soviet government to fool foreign visitors. The government would take such visitors, who were often already sympathetic to socialism or communism, to select villages, factories, schools, stores, or neighborhoods and present them as if they were typical, rather than exceptional. Given the strict limitations on the movement of foreigners in the USSR, it was often impossible for these visitors to see any other examples. <1>
This practice was certainly not confined to the Soviet Union, but rather has been common in countries with "actually existing socialism." "The Big Fish" is a famous story from People's Republic of China which deals with the visit in the early 1970s of foreigners to an urban market Potemkin Village (Chen: 135-150).
It has been applied even more widely. The term always carries a tone of disapproval or extreme doubt. It has been used to describe Iraq--both by those on the right to criticize Saddam (Ledeen) and those on the left to criticize Bush (Raimondo)--as well as North Korea (Sullivan). It has even been used to describe something as remote from the original meaning as hype in the Internet business in Ireland (AircomTribunal).