We use DocBook for all of our specifications (and other customer-facing documentation). DocBook is an XML format that lets you easily generate documents in just about any format, including PDF, which is how we distribute things to clients to get them signed off. We can divide a document into files (by section) and commit everything to our source control system (Subversion). Because it is all XML (i.e. text-based), Subversion's automatic merging and conflict resolution works great if two people work on the same file. We have a set of stylesheets that all of our documents use, so all documents share the exact same style/format, with no extra work on our part.
And if you don't like editing XML files directly, there are GUI front-ends that provide a reasonably WYSIWYG-like experience. I believe that most people in my office use XMLMind. Still, we happen to all be technical people so if we had to write XML directly it wouldn't be an issue.
As a sidenote, we also put out release notes. We have some XSLT that lets us write documents like this:
<bugs>
<bug id="1234" component="web">JavaScript error when clicking the Kick Me button</bug>
</bugs>
We then have a script that runs through our Subversion repository doing an svn log
from the previous release tag to the current release tag, and some Bugzilla integration to automatically generate release notes on-the-fly.
(also, for most internal-only documentation, we use MediaWiki, which is also a great way to collaborate.)