Dungeon Scaling

Difficulty Scaling, also known as Dungeon Scaling, is the mechanism that adjusts the difficulty of quests and adventure areas (but not raids or Epic difficulty) depending on the number of players in the group, the number of hirelings in the group, and the group's composition in order to help smaller parties face a more appropriate challenge. As a result, several dungeon elements are adjusted, possibly including monster spell durations, hit points, and damage output.

Group size
Difficulty Scaling adjusts the challenge of an instance depending on the number of players and hirelings in the quest. Hirelings do not count as heavily as a player character and Gold seal hirelings count even less heavily than a normal hireling. This is done to reduce the likelihood of a player over-scaling him- or herself by accident and to make gold seal hirelings a little more valuable.

Difficulty setting
Difficulty Scaling behaves differently depending on the difficulty setting. Quests on Normal difficulty scales more than quests on Hard difficulty and, officially, but quests on Elite are those which scale more than any other, and Epic difficulty do not scale at all. However, several players report Difficulty Scaling happening on Elite difficulty, contrary to the official description. Turbine has confirmed in the forums that Elite difficulty does, in fact, scale.

Group composition
Characters' classes affect Difficulty Scaling. No data has been given about how each class affects the difficulty of a dungeon, however.