The idea with prediction markets and politics is that they can provide a better source of information than polls. Someone could create a market for "Who will win the 2016 US Presidential Election" and then anyone can place bets on who will win. The idea is that the the current trading price is representative of the probability for each candidate to win.
Augur supports markets with up to 8 outcomes, which means they can easily support an 8-candidate political election.
There have been some theories on Futurarchy where markets can predict the success of laws and use that prediction to drive lawmaking over time. The problem with this is that defining success metrics with a clear schelling point for legislation is really hard, so I don't see this happening soon.