What tylerharms describes is similar to my experiences at an undergrad level at a fairly large college.
There were 10 to 12 people in the class. We received an assignment (Write a short play, or Write an essay about something personal) and had to turn it in by a specific deadline. The deadlines were rotated so that in each class we were discussing one person's work.
So on Tuesday, let's say, I would make copies of my play and distribute it to everyone in class. The next class period (Thursday) everyone was expected to have read the play and marked it up, and we discussed it. People gave me comments and I defended my choices or accepted the critique. At the end of the class, everyone gave me back their marked-up copies for my review.
I genuinely don't recall how any of my professors graded. I think one poetry assignment was "Take a previous work you submitted in this class and improve it using your classmates' suggestions," but beyond that, I guess it was subjective using the same criteria as everyone else: did you like it? did it work? was it technically sound?
In the Essay Writing class, which was three times a week, we would begin the week with a five-minute writing exercise. Someone would volunteer a word ("defenestrate") and everyone had to write nonstop for five minutes on the clock about that word. Then one or two of us might share their writing and we'd critique it. We also read published essays for homework and discussed them in the same way we did one another's work. That class also had scheduled office hours, where you had to come in outside class time and discuss your work with the professor for half an hour or so.