Thats right, how old is your DD? You could try the BBC website, they did a series of school programmes called Brazil 2000 which covered this. Otherwise the geography section on 'Staffordshire learning net' is fab and would probably have a link to something useful
Sorry Pruni, I am from Rio, so thought for the record I would say... they are illegal settlements. Some of them haver grown to the size of cities and star to organize themselves. At the time of the elctions there is a lot of discussions about how much to legalize their "self-organized" instituttions, but surely not their own police! There are unfortunately inumerous fights between the "real" police and drug lords (whom usually buy favors from locals by patronizing favelas)which lead to a lot of bloodshed.
I remember studying Latin American shanty towns 20 years ago, when a graduate student. One book which made a big impression was 'The Myth of Marginality', by Janice Perlman. She argued that favelas were far more organised and integrated into Brazilian society than many at that time realised. I did a google search on her and came up with a much more recent conference paper of hers which you might find useful. here