In his 1975 book Discipline and Punish: The Birth of the Prison, Michel Foucault analyzed the transition in Western Europe from a "theatrical", irrational and arbitrary form of punishment (exemplified by the large public executions that prevailed until the early 19th century) to a rational system of meticulous behavioral control typical of what became the modern prison.
In such modern prisons, the behavior of inmates could be observed, monitored and judged in infinite detail, from 'big' things like violence or rebellion, to 'small' things such as facial expressions, tone of voice and physical appearance. All of this was recorded in individualized files documenting the 'total' person of the inmate, and such files were the tools for organizing the life of inmates in prisons. The modes of observation and recording were modes of knowledge, of rationally collected and arranged 'crimonological' insights into the character structures of the inmates, and knowledge became the raw material and key instrument of a new, modern, system of power. The rational disciplining of the totality of inmates' behavior became the form in which punishment was organized.
This transition, Foucault argued, was exemplified by an architectural structure designed by 18th century British philosopher Jeremy Bentham, as the model for modern prisons. Bentham proposed a 'panopticon' - literally: a place where one could see everything.
The structure was a product of Enlightenment: it was grounded in rationality and aimed at maximum efficiency. Just one guard would be needed to observe all the inmates from the central guard post. For the inmates, such a structure would have the effect of internalizing imposed discipline: they would be aware of the fact that they were visible for the guard at all times (even if they were not effectively seen by the guard), and they would adjust their behavior to this awareness of visibility. Thus, they would internalize the rules of adequate behavior in prison and implement their own punishment.
Foucault used the panopticon as the shorthand for new systems of power based on surveillance - the collection of knowledge on all aspects of people's life and behavior in attempts to bring them under control and instill discipline into them. And he saw plenty of panoptic structures emerging in the modern era: army barracks, factories, hospital wards, and classrooms or lecturing halls would all be built on the basis of the same principles in which those in power would be able to observe, with minimal effort, the totality of the subordinates.
If we convert this to the 21st century, we see strong panoptic effects in the way in which online behavior is turned into data over which the user has no control. A corporation such as Facebook or Google has the capacity to observe and monitor everything we do online through their applications, and to convert the data thus gathered into algorithmically defined user profiles creating bubbles for users. Similar techniques are used by security and intelligence agencies.
Here is a trivial but widespread example of a panoptic effect:
The author of this tweet performed what he thought was a simple, innocent action. But the action was judged, by an algorithm, to "look like" an automated action performed by a bot, and rejected. All of this is done on the basis of huge amounts of data gathered online, leading to "profiles" of particular actions and judgments of actual behavior. The author is informed about the presumed violation of platform rules, so as to adjust his behavior - to discipline himself. A panopticon in full force.
See also this excellent illustration of how contemproary panoptic systems work.