Where can I find documentation on the /etc/environment file format?

I'm not sure why this isn't made more clear, but /etc/environment isn't parsed by any single bit of code or any particular shell (or necessarily any shell at all) (try grep -r "/etc/environment" /etc and you'll see what I mean). pam in particular parses it directly, not putting it through a shell.

By convention, and I do mean convention, it's pure key-value pairs, with values optionally quoted. You can't put anything that tries to do e.g. variable expansion or command execution in there and expect it to work.

I'd be surprised if you can find a strict, formal grammar definition anywhere.

Probably the closest to an authoritative answer you can come is the pam_env docs: http://www.linux-pam.org/Linux-PAM-html/sag-pam_env.html

You can find good information in the environ man page. It is accessible from a terminal, by typing man 7 environ in it.

By convention the strings in environ have the form "name=value".

You can also read it from your browser: http://manpages.ubuntu.com/manpages/lucid/en/man7/environ.7.html#toptoc2

And it gives you some examples of usage and more details.