Protein Preparation
Rather than expressing the protein in a cell, the protein is expressed in vitro. The DNA or mRNA for the target protein is added to a cell extract containing the transcription and translation machinery along with a variety of other compounds including the 20 amino acids, nucleoside triphosphates (NTPs), several enyzmes as well as buffers, salts etc. The reaction mixiture is typically only a few μl-ml large, but yields of several mg of protein per ml of reaction mixture can be achieved. Chaperones, detergents and other compounds that facilitate folding can also be added.
It is very easy to label individual amino acids simply by adding them to the reaction mixture in labelled form and adding the other amino acids unlabelled. Although labelled amino acids are quite expensive, the small reaction mixtures used in cell-free protein expression prevent the costs from getting out of hand too much.

Applications
Cell-free protein expression has several advantages both for creating specific isotopic labelling schemes, but also for efficient expression, generally. Amino-acid specific labelling is possible without scrambling from the E.Coli catabolism and metabolism. Furthermore, it is possible to introduce alternative amino acids, e.g. fluorotryptophan, with far greater efficiency than when using cell-based systems. More generally, cell-free protein expression can be very useful for proteins which do not express well in cells, for example because they are toxic to the cell. Cell-free expression is also proving to be successful for membrane proteins which can traditionally be very difficult to express in large amounts in cells.

References:
G. Zubay (1973) Ann. Rev. Genet. 7 267-287. (Link to Article)
T. Kigawa, Y. Muto and S. Yokoyama (1995) J. Biomol. NMR 6 129-134. (Link to Article)
D. Schwarz, V. Dötsch and F. Bernhard (2008) Proteomics 8 3933-3946. (Link to Article)