Ambient Occlusion simulates soft global illumination by computing shadows resulting from light coming from all directions. These shadows are similar to shadows cast from an overcast sky. This feature darkens cracks, creases, corners, and points of contact. Ambient Occlusion is a specific, not physically accurate, rendering trick. It samples a hemisphere around each point on the face, sees what proportion of a hemisphere is occluded by other geometry, and shades the pixel accordingly. It has nothing to do with light, but is instead a rendering trick that looks appealing and increases the realism of geometry. In real life, surfaces that are close together (like small cracks) are darker due to dirt, shadows, and so on. Ambient Occlusion approximates this result; it does not simulate light bouncing off or through objects. Ambient Occlusion works even if there are no lights in the scene.
The Ambient Occlusion calculation is a preprocess and takes place during data preparation; results are baked on the geometry’s vertices. The smoothness of the Ambient Occlusion depends on the detail level of a geometry. Therefore VRED offers several ways to increase the quality on low-level geometries, like subdividing triangles, and predefined quality presets.