Pardon the Canadian who’s just starting to learn about the U.S. political process, but…
I couldn’t help but notice that Wesley Clark seems to be the first candidate to drop out of the Democratic leadership race who had already won delegates. So what happens to those delegates? Do the remaining candidates inherit them? How? Do the delegates just pick whomever their second choice was? And if so, when do they have to decide? Just anytime before the convention, or is there an earlier deadline?
I believe the official answer is:
It depends.
Presumably Clark can release them of their promise to vote for him. I imagine the technicalities are rather byzantine.
Well, this isn’t a matter of law, it’s a matter of party rules. First, delegates are only bound for the first convention vote. After that, they can vote for who they want. Of course, this only matters when there is an open convention (when no candidate has a majority going into the convention) but this hasn’t happened for years.
Second, delegates are typically selected by the candidates. In other words, the Dean delegates would have some personal loyalty to Dean, the Kerry delegates would have some personal loyalty to Kerry, etc. So even if they aren’t “legally” bound to the candidate, the candidate still has influence over them. If the candidate tells them to do something, like support another candidate, they’re inclined to do that, even if they don’t strictly have to.
Finally, in answer to your question, I believe that candidates who drop out usually release their delegates to vote for whoever they want to on the first vote. (If they don’t release them, I think that the delegates still have to vote for their candidate, though I’m not sure what they do if their candidate isn’t actually nominated) If their candidate endorses someone else, that probably has a strong influence on whom they vote for.
IIRC, the procedure is a function of the individual state parties. Some have rules binding their delegates so that they are pledged for the first ballot. Others dismiss the affiliation when the candidate officially drops out of the race.
The primaries were seen as a way to circumvent the party bosses from voting their states as blocks, and especially to stop them from switching candidates during the convention for political promises. (There was an entire subgenre of political novels set in conventions, every one of which had as a plot a dramatic last minute shift of delegates from one candidate to another. These are now totally obsolete and forgotten.) By electing delegates who were pledged to a candidate - or at least had free will: some states still can vote for unaffiliated delegates - the idea was to open the conventions so that the will of the voters could be better represented. Of course, none of the party leaders understood that the combination of primaries and media would lead to the death of meaningful convention voting by producing a guaranteed candidate before the convention even started.
Just as a footnote, major elected officials in the parties are automatically “Superdelegates” officially unpledged to any candidate, as a last vestige of the old system. In reality, this means they get to vote for the winner and have it on the record. 
2004 Presidential Primaries, Caucuses, and Conventions. This amazing site appears to have state by state details of every aspect of the process - except your actual question. 
It depends on the party rules in the various states where the delegates were elected.
some state rules still require them to vote for Clark on the first ballot. If his name is never placed in nomination at the convention, then those ballots would be ‘spoiled’ and not count.
some states require their votes to be reassigned to the remaining candidates, in the proportion that those remaining candidates got in the election. (For example, if Kerry got 50%, Dean 25%, & Clark 25%; the Clark votes would now be split with Kerry getting 2/3rds & Dean 1/3.) As candidates continue to drop, this might have to be done several times.
some states just allow the elected delegates to choose on their own.