FWIW, here are some notes I made on the subject while researching the subject some years ago after a similar discussion on the PPG list:

from http://www.faa.gov/avr/afs/faa/8700/.../2_102_00.pdf:
(CHAPTER 102. EVALUATE A PART 133 CONGESTED AREA PLAN (CAP))


(a) Congested Area. The congested nature
of an area is defined by what exists on the surface, not
the size of the area. While the presence of the nonparticipating
public is the most important determination
of congested, the area may also be congested with
structures or objects. An area considered congested for
airplane operations could be equally congested for
helicopters. If an airplane flying over a congested area
at less than 1,000 feet above ground level (AGL) is in
violation of 14 CFR 91.119(b), the area may also be
a congested area for a helicopter conducting externalload
operations. However, the most important word in
this concept is over. Helicopters can operate over relatively
small uncongested areas because of their maneuvering
abilities.


from http://www.ntsb.gov/O_n_O/docs/AVIATION/4188.PDF:
NTSB Order No. EA-4188, about low flying over a highway:

...The deputy sheriff riding in the passenger seat
testified that the aircraft operated over the freeway for at
least 30 seconds, at an altitude of 75-100 feet....
...In the Board's view, even if Interstate 5, a major
California freeway, is not "bumper to bumper" on a late Saturday
afternoon, moderate traffic in every lane still renders it
"congested," for purposes of the regulation. See also
Administrator v. Dutton, NTSB Order No. EA-3204 (1990)(Moderate
traffic on a highway at 12:55 p.m. is a congested area for
purposes of the minimum safe altitude regulation).9

from http://www.ntsb.gov/alj/O_n_O/docs/aviation/3646.PDF
...the Shepard Mesa subdivision -- comprised of a minimum of
20 houses, in an area approximately .5 mi. x .66 mi.7 -- would
qualify as a congested area.... "the aircraft flew at least as low as
300 feet."
DMH note: .33 square miles = 211 acres, average 10 acre lots (!)

from http://www.irishstatutebook.ie/ZZSI568Y2001.html
IRISH AVIATION AUTHORITY (RULES OF THE AIR) ORDER, 2001
"congested area" means in relation to a city, town or settlement, an area substantially used for residential, commercial or recreational purposes without adequate safe forced landing areas"
DMH note: Not U.S., but interesting that other countries DO define it.

from http://www.faa.gov/programs/en/ane/noise/submit.cfm:
There is no regulatory definition of 'congested area'. Administrative case law has determined what is congested on a case-by-case basis. [Case references are available on request]). The public should be aware that an area does not have to be completely free of persons or properties to be considered noncongested. Additionally, it is possible that small, noncongested areas as small as an acre or two may allow aerobatics to be performed without violating 91.303's stipulations.

from http://www.aviationtoday.com/cgi/rw/...le=1200jar.htm, a discussion of prposed new European regulations:
"Hostile environments," as defined under JAR-OPS 3.480, include areas where "a safe forced landing cannot be accomplished because the surface is inadequate"; where there is "an unacceptable risk of endangering persons or property on the ground"; and "those parts of a congested area without adequate safe forced landing areas."...

"Congested areas," as defined in JAR-OPS 3, are essentially any densely populated town or city where no open spaces exist to permit a safe emergency landing in the event of an engine failure.

At The Hague meeting, industry and regulatory representatives agreed that the "congested area" concept is made redundant by the distinction between "hostile" and "non-hostile" environments...

Another concept created by JAR-OPS 3 was that of "exposure times." Performance Class 1, Category A helicopters can fly over hostile and congested areas, but JAR-OPS 3 allows Performance 2, Category A helicopters to fly over hostile, non-congested areas with an exposure time, the length of which depends on a target engine failure probability of 5 x 10-8, according to Jim Lyons, secretary of the JAA’s Helicopter Subcommittee and a CAA official in Britain.

This translates, in practical terms, to exposures ranging from a few seconds to several minutes.

* * * * *

Unfortunately, the phrase "congested area of a city, town, or settlement, or over any open air assembly of persons" has not yet been specifically defined by the FAA. The FAA has stated in a 1979 Legal Opinion that it will be determined on a case-by-case basis. Below is a copy of the Opinion--note the FAR references have changed.

__________________________

"In response to your letter dated August 28, 1979, and subsequent telephone conversation, we offer the following answers to your three questions. The facts on which our interpretations are based are as follows:
A fixed wing aircraft operating at an altitude of 600 feet flew directly over a populated subdivision of Prince William County, Virginia. The subdivision consisted of at least 40 residential homes on one acre lots. While operating in this area, the aircraft made a number of steep turns over one of these houses.
1. What is the interpretation of the term "congested area of a city, town or settlement" as that term is used in Section 91.79(b) of the FARs?
The meaning of the term "congested area" is determined on a case-by-case basis. It first appeared in the Air Commerce Regulations of 1926. No abstract regulatory definition has yet been developed. However, the following guidelines indicate the interpretations of the Civil Aeronautics board (now National Transportation Safety Board) in attempting to give meaning to the term.
a. The purpose of the rule is to provide minimum safe altitudes for flight and to provide adequate protection to persons on the ground. Thus, it distinguishes flight over sparsely settled areas as well as large metropolitan areas from low flying aircraft. Thus, size of the area is not controlling, and violations of the rule have been sustained for operation of aircraft: (i) over a small congested area consisting of approximately 10 houses and a school (Allman, 5 C.A.B. 8 (1940)); (ii) over campus of a university (Tobin, 5 C.A.B. 162, 164(1941); (iii) over a beach area along a highway, and (iv) over a boy's camp where there were numerous people on the docks and children at play on shore.
b. The presence of people is important to the determination of whether a particular area is "congested." Thus, no violation was found in the case of a flight over a large shop building and four one-family dwellings because, in the words of the CAB examiner, "it is not known (to the court) whether the dwellings were occupied." In that case, the area surrounding the buildings was open, flat and semiarid.
c. The term has been interpreted to prohibit overflights that cut the corners of large, heavily congested residential areas.
As made clear in FAR 91.79, the congested area must be an area of a city, town, or settlement.
2. What is the interpretation of the term "sparsely populated areas" as contained in Section 91.79(c)?
While this term is not expressly defined, we can conclude that it is something other than a congested area under Section 91.79(a). A subdivision of at least 40 occupied residential homes on adjacent one acre lots in Price William County, VA, would not be considered a sparsely populated area. Such a subdivision would well constitute a "settlement" under the rule.

Please feel free to contact us if we can be of further assistance.

Sincerely,

EDWARD P. FABERMAN
Acting Assistant Chief Counsel
Regulation and Enforcement Division
Office of the Chief Counsel"