I have heard that when a new product is used and exposed publicly, before the patent application is filed, that it then loses the ability to be awarded a patent.
That's true in virtually every country EXCEPT the U.S. In the U.S., it depends on who used and exposed the invention publicly -- if it was the inventor, or under the direction of the inventor, then the inventor has one year from the date of first public disclosure to file the application. If the use of disclosure is by someone other than the inventor -- usually a separate inventor -- then the U.S. follows the rest of the world.
So, if you invent something, you can sell it, or talk about it, or sell it to someone else and let them talk about it, and you have a year from your first public disclosure to file your application. However, if someone else comes up with the same invention on their own, and publicly uses it, that may preclude you from filing your own application.
But even in the latter case, it's not an absolute bar, as it is in Europe, but that's the general rule.
What defines public exposure of the new product?
A good question, with no simple answer. An offer to sell, an actual sale, a talk at a trade show or convention, an article, all are examples of possible "public exposures." However, whether a particular disclosure is "prior art" under 102 is very fact dependent.
If you test the product with a real life customer, does that come under the rule for public exposure of the new product (for patent purposes)?
Not necessarily. There are exceptions to the 102 rules for experimental use, and if the use is conducted under an NDA so that it remains a "trade secret" then it is by definition not a public use. But again, this area of law is very fact-dependent, and can be quite complicated. There are no general "this is okay, this isn't okay" answers.
How can it be documented (from a third party) to the USPTO that a pending patent application is in fact the subject of a product that has been exposed publicaly and therefore possibly not eligible for patent?
Start here:
http://www.uspto.gov/web/offices/pac/mpep/documents/2200_2203.htm#sect2203
and continue reading the following sections for the procedure for filing prior art for a pending patent.
If the patent has already issued, then the only way to object to a patent (other than through the courts in a litigation proceeding) is through reexamination:
http://www.uspto.gov/web/offices/pac/mpep/documents/2200_2209.htm#sect2209