mbient occlusion is a method to approximate how bright light should be shining on any specific part of a surface, based on the light and it’s environment. This is used to add realism.

Wikipedia has a nice paragraph that explains what is done.

Ambient occlusion is most often calculated by casting rays in every direction from the surface. Rays which reach the background or “sky” increase the brightness of the surface, whereas a ray which hits any other object contributes no illumination. As a result, points surrounded by a large amount of geometry are rendered dark, whereas points with little geometry on the visible hemisphere appear light.