Literature circles, to me, are a lot like miniature classroom "book clubs." The few times I've incorporated them in my classroom, they were wildly successful, and my students enjoyed them as much as I did. The biggest beauty of literature circles is that there is no right or wrong way to incorporate them.
Here are a few tips for what has worked in my classroom:
First, I don't introduce literature circles until the very end of the semester, after I have already established a very consistent classroom routine, built a rapport with my students, and know students fairly well individually. For me, literature circles lack structure too much to tackle them at the beginning of a semester, and I find that they are not effective for every class. I've treated them like an independent book project where students get lots of class time for completion, and I often incorporate them while studying something less text-heavy, like poetry or a writing unit, so that the reading is balanced and not burdensome. I like to do a few discussions periodically, rather than wait until the very end of the book.
I introduce the concept of literature circles by telling students they are supposed to work like a book club. I explain that students will be responsible to read on their own but then get to guide their own class discussions. I explain that the point is to interact with the text on a personal as well as intellectual level, so they are expected to come to class ready to talk, but there are really no wrong answers in discussion. At this point, I usually hand out a rubric for how the project will be graded. For some classes, the rubric is very sparce, and simply outlines discussion dates and points for participation. In other classes, I've broken down more specific guidelines, such as requirements for each student to "lead" a discussion, turn in written discussion notes, or keep a reflection journal. It all depends on the general attitude of the class, and how much grading they need for personal accountability. When it comes to discussion days, I circulate among the groups and try to catch a little of what each group is talking about.
Usually I provide the book choices, but I have also let the students choose their own (one result of this approach is very gender specific groups and some book choices that are not necessarily in-depth discussion material). Once, just after reading Night, my class was really interested in reading more Holocaust texts, so I allowed them to propose books and narrowed the list down to six. Because of the prior interest, this was one of my most successful uses of literature circles. At the end, each group presented a final thought to the class, and many students passed books around for weeks to come.
I love literature circles, but like I said, in my high school classroom, they would not always be successful. Some students simply need more guided instruction and shut down in the face of open-discussion. If you have the right classroom environment though, I have seen this project become the best thing I do in a semester. Hope this helps, and have fun.