soft power was coined by Joseph Nye at Harvard (
http://www.ksg.harvard.edu/news/opeds/2003/nye_soft_power_iht_011003.htm for an op ed piece talking about soft v. hard and terrorism). Basically, it is anything that is the opposite of hard power, ie military might. This usually refers to cultural and economic means. For instance getting McDonalds and CocaCola into every country in the world is a way of the US exerting soft power to bring people around to our way of life/thinking.
But in these digital times, soft power has expanded in ways not originally forseen. The blogsphere is an example of soft power. Dean cam out of nowhere to almost win the democratic nomination largely based on his use of soft power within the network. Moveon.org (largely despised here) makes excellent use of soft power to try and advance their agenda. As NGOs and other organizations go online, we're seeing other examples of this phenomenon. Swarms and other tactics are all made possible by the network, and are soft power tools.
So I have a slightly different take on soft power, but I think it cannot be denied. And if the government ignores is, or worse yet, tries to use it without understanding the cultural needs and implications, they will be in for a rude awakening.