Ambient-Occlusion

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Ambient Occlusion (AO)

Ambient Occlusion adds shadows to the meshes to make them look more realistic. (see pictures below)


As you can see in the in the images, the tribune and the car on the right with AO look far more realistic opposed to their counterpart on the left.
You can think of AO as a permanent shadow which is added to the object’s texture.



image sources:
forum.wmdportal.com
forum.wmdportal.com