An oldish but still useful post on how to demo software by Joel Spolsky.
The only interesting way to design a demo is to make it a story. You have a protagonist, and the protagonist has a problem, and they use the software, and they… almost solve the problem, but not quite, and then everybody is in suspense, while you tell them some boring stuff that doesn’t fit anywhere else, but they’re still listening raptly because they’re waiting to hear the resolution to the suspenseful story, and then (ah!) you solve the protagonists last problem, and all is well. There is a reason people have been sitting around telling stories around campfires for the last million years or so: people like stories.
As with all advice, Spolsky’s rules should be tuned to your purposes but the ideas are solid for anyone who talks to groups of people. (via stamen)