A Director is a AI system that look at the state of the game and modify it to create a better game play experience. What it look at and what it changes depends on the goal of the director. The director can also be switched while the game is running or have multiple directors run at one with separate areas of responsibility.
Goal
Phases
State
The state is the things in the game that the director use to decide what to do if anything.
Modify
Spawn mobs
Spawning enemies and friends as needed to control the pace of the game. In a cooperative if one of the players wander of one can spawn enemies to attack him.
Spawn items
If the player are hurt after a battle spawn medkits in the next room or ammo if he his running out.
Modify Map
By modifying the world things can change as the player moves around. If the player play a stealth style modify the following encounters to focus more on sneaking.
Reference