Steely Dan got their name from a sexual device depicted in the book 'The Naked Lunch'.
Just as in a magic show, the major method at work here is distraction. Human beings usually focus their attention on one thing, so if you give them anything interesting to focus on, they won't pay attention to their money and valuables.
In the pickpocketing world, distraction can get pretty elaborate. Two members of a team might stage a fight while the third member takes advantage of the inattentive crowd. Child pickpockets may try to show something to a mark, like a drawing or a toy,(see charles dickens' oliver twist) while other children sneak up from behind. Another common trick is to surreptitiously spray someone with bird droppings, or a convincing facsimile, and then offer to help clean it off.
One of the most effective distractions is sex: An attractive woman, usually pretending to be drunk, will touch an unsuspecting man affectionately, and lift his wallet or watch while he's distracted.