Shôen were the vast tax-free estates that served as the basis of Japanese political power in the Heian and Kamakura Eras.
Under the Taiho Code of 702, all lands theoretically belonged to the Emperor and were thus subject to imperial taxation based on a land allotment scheme modeled after the system used by China's Tang Dynasty. But from the very beginning, not all lands were converted into public lands to be alloted to tax-paying peasants. Some lands remained in private hands, and were an early form of shoen.
In 723 the imperial government created incentives, in the form of temporary tax breaks, to encourage the opening of new lands to cultivation. The aim was to raise more taxes. The scheme proved unsuccessful, however, because local peasants deemed the value of the tax breaks not worth the cost and effort of opening new lands, if they would not receive any permanent rights to these lands.
In 742, the government declared that newly cultivated lands would not be subject to the land allotment pool, meaning that those who opened the lands would acquire some sort of permanent rights to the land. The government believed that these lands would primarily be opened by local peasantry, but in actuality only wealthy noble families had the resources to do this; the result was a system of private estates - the first shoen. It is important to note however, that these early shoen differed from later, "true" shoen in that they were still subject to imperial taxation and regulation by national constabulary.
Things continued much the same for several hundred years, until the 1070s, when Emperor Go-Sanjo, seeking to arrest the diminution of imperial land holdings, created a special agency, the kirokujo, to limit the creation of new shoen and to revoke the charters of less-than-fully-legal shoen and return the lands to the imperial house. This plan, designed to limit the spread of shoen, backfired and actually contributed to an increase in shoen, as nobles who felt their sources of wealth threatened not only began making sure their charters were legally airtight, but also rushed to acquire new shoen.
In addition to opening new lands, elites could acquire new shoen via another method in which pesants would donate their lands to monasteries or noble houses to escape increasingly harsh taxation. In a formal relationship codified with written contracts, the peasants and their descendants would retain custodianship of the land in perpetuity in exchange for paying rent to the lords, who would in turn use their influence at court to forever exempt the land in question from imperial taxation. In this special relationship, the lords were known as ryôke, while the peasants were known as azukari dokoro, or sometimes, gesu.
As the system developed, the ryoke would often donate the lands to even more influential lords, known as honke. The point was that at each level of the hierarchy, the higher-up figure would use his influence to thwart any attempt at taxation. Ultimately, only the highest of the high truly had the final authority to prevent taxation, and thus eventually all shoen came to be owned, through a series of successive donations, by the capital nobility or the imperial family (which found itself increasingly forced to participate in a system of land grabbing despite the fact that it theoretically still owned all the land).
This hierarchy of "layered ownership" came to be known as shiki. Everyone, from the highest of the high to the lowest of the low, wanted shiki, because everyone got at least a small piece of the pie - unlike most other social systems known to man, shiki guaranteed all participants hereditary income and status. This top down flow of patronage through a sequence of "owners" from the highest court nobles to the lowliest peasants (and the complementary flow of clientage back up the ladder) created a series of vertical factions, in which each man was only in competition with his direct peers (i.e. those on his same level) while being allied with his immediate social superiors and inferiors. This system meant that there was virtually no inter-class conflict, and only limited intra-class conflict, which allowed a remarkable level of social stability that contributed to the peaceful golden age of the Heian Era.