If the pilot is in a moment of crisis, then an emergency should be declared.
PAN is used when it is not at that level.

The AIM goes into this in detail. MAYDAY is for an aircraft in distress,
while PAN-PAN is for an urgency condition. Both are emergencies:

6-1-2 a. An emergency can be either a distress or urgency condition as defined
in the Pilot/Controller Glossary. Pilots do not hesitate to declare an
emergency when they are faced with distress conditions such as fire,
mechanical failure, or structural damage. However, some are reluctant to
report an urgency condition when they encounter situations which may not be
immediately perilous, but are potentially catastrophic. An aircraft is in at
least an urgency condition the moment the pilot becomes doubtful about
position, fuel endurance, weather, or any other condition that could adversely
affect flight safety. This is the time to ask for help, not after the
situation has developed into a distress condition.

6-3-1 c. The initial communication, and if considered necessary, any
subsequent transmissions by an aircraft in distress should begin with the
signal MAYDAY, preferably repeated three times. The signal PAN-PAN should be
used in the same manner for an urgency condition.

http://www.faa.gov/airports_airtraff...6/aim0601.html