Autosuggestion
Intervention by a spirit/ghost
Autosuggestion is where the participants unconsciously control the movement of the glass or pointer. Something, possibly the combination of the random and minor spasming of the muscles of the participants, drives the glass in a random direction. Subconsciously, and perhaps even consciously, the participants note that the glass has moved. "Wow, it is moving toward the 'A'!" This "recognition" of the glass' movement is interpreted as supernatural intervention and this leads to a subconscious effort to assist the spirit in the glass, which in turn leads to the participants actually moving the glass themselves towards its supposed destination.
This random movement would, one would expect, lead to a random distribution of letters which would, for the most part, appear as gibberish. However, despite all good intentions, there is likely to be some editing by the participants. "What is it doing now? 'Z' followed by 'M' doesn't seem right, it must be heading for the 'O'." The participants begin to subconsciously guess ahead and the letters come out in a generally orderly fashion. I'd guess that there is a sort of Pavlovian response involved here wherein this subconscious action is rewarded by words being spelt out.
Séances that operate in entirely this manner wouldn't be likely to produce much in the way of sensible answers. It would be like trying to hold an intelligent conversation with Dan Quayle.
However, what if the initial miniscule movement of the glass was not random? In that case the movement of the glass is not entirely caused by autosuggestion. See the following sections.
(This discussion relies in part on thoughts provided by Mike Condouris. Errors and misrepresentations are mine.)