A recent investigation by a show here in AUstralia revealed how he does it. Its simple. He has plants in the queue before the show who appear to be audience members. They start conversations supposedly about their lost relations and this stimulates conversations which are then noted. So if someone says oh yeah my mum recently passed away and I hope I hear from her and so on. The plants then probe innocently and get details.
Notice he often just says initials and then its your mum, uncle, cousin and so on then the audience member fills in all the blanks. He will often just mention something that seems incredibly related. I saw one where he talked about a feather and a mother and daughter picked one up in niagra falls and John said it was from the husband. Turns out she talked about it in the line up before the show. Yet it seemed he had pulled it out from nowhere. Its so simple when people really want to believe something. They also mentioned he used to get people to fill out questionaaires before the show too!