Spectation is a SpyParty feature that lets you observe a game while it is being played by others. You can do this by selecting the "Spectate This Match" option that appears underneath each pair of players in the game lobby. There are two spectation modes available: passive and sniper.
Passive Spectation[]
Passive spectation allows you to view the match using the same interface as replays. The principal difference is that the timeline as displayed in the scrubber continually grows as the game progresses. You can even use the scrubber while the game is still in progress.
Sniper Spectation[]
The sniper spectation mode allows you to pretend to be the sniper on the match you are spectating. You are presented with the same interface and controls as the sniper. Sniping a person as a spectator has no effect on the actual game; instead, you will be informed if you sniped the spy or a civilian, and after a two second delay spectation will resume. You can continue "shooting" until you shoot the spy, at which point the game will switch to passive spectation. Press Ctrl-Shift-Tab to switch to passive spectation; since this shows you who the spy is, you can't switch back.