TeXtrace, originally developed by Péter Szabó, is a bundle of Unix scripts that use Martin Weber's freeware boundary tracing package autotrace to generate Type 1 outline fonts from Metafont bitmap font outputs. The result is unlikely ever to be of the quality of the commercially-produced Type 1 font, but there's always the FontForge font editor to tidy things. Whatever, there remain fonts which many people find useful and which fail to attract the paid experts, and auto-tracing is providing a useful service here. Notable sets of fonts generated using TeXtrace are Péter Szabó's own EC/TC font set tt2001 and Vladimir Volovich's CM-Super set, which covers the EC, TC, and the Cyrillic LH font sets (for details of both of which sets, see "8-bit" type 1 fonts).
Another system, which arrived slightly later, is mftrace: this is a small Python program that does the same job. Mftrace may use either autotrace (like TeXtrace) or Peter Selinger's potrace to produce the initial outlines to process. Mftrace is said to be more flexible, and easier to use, than is TeXtrace, but both systems are increasingly being used to provide Type 1 fonts to the public domain.
The MetaType1 system aims to use Metafont font sources, by way of MetaPost and a bunch of scripts and so on, to produce high-quality Type 1 fonts. The first results, the Latin Modern fonts, are pretty impressive, and it is known that the team that produced the system are developing new work using the system.
This question on the Web: http://www.tex.ac.uk/cgi-bin/texfaq2html?label=textrace