So far the most helpful resource for understanding the whole story was "Digital Typography" by Donald Knuth (chapter 3 only): http://www.amazon.com/exec/obidos/tg/detail/-/1575860104
The chapter in question (Breaking Paragraphs Into Lines) was originally published by Knuth and Plass in "Software - Practice and Experience 11 (1981), 1119-1184."
Anyone who is interested may be able to obtain a copy of the ogiginal paper more cheaply than the book.
Peter -- Peter B. West <http://cv.pbw.id.au/> Folio <http://defoe.sourceforge.net/folio/> <http://folio.bkbits.net/>