Does the crowd dictate what the DJ plays or does the DJ dictate to what the crowd dances?

I went to my niece's graduation party this past weekend. The DJ played some stuff that I didn't know already. That's not unusual. What I found interesting is that not only did all or most of the crowd (not all 18-21 year old people) know the songs but they knew how to do the dance well enough to look like professionals. Not only did I not know the songs but I had never heard them and never heard of whoever it was that made the record.

Where does a person learn these things? How does the DJ *know* what's popular enough to play?

Inquiring minds want to know ...

A professional party and event DJ should know what is popular among the various age groups. 

Also, the DJ should consult with the organizer of the party or event to play the type of music they would like (and avoid the type of music they say they don't like). 

Some DJ's will also take requests from those attending the party.

A good DJ also should be able to read the crowd and adapt the playlist to what the crowd seems to be responding to.

i know djs and producers who vibe off the crowd
and there are wedding djs who play a list of songs they were given