Quoting from the web site:
“Ambient Occlusion is a form of indirect top-down global lighting. In practice it gives the impression that an object, objects or scene are lit by a hemispherical soft, diffuse (indistinct) light source that approximates the way real light reflects, bounces and affects objects and surfaces based on their proximity and orientation to each other and the ambient light source – the closer an object or surface is to its neighbours, the more light it blocks, and vice-versa. This results in surface ‘shading’ rather than the surface ‘shadows’ typical of standard ‘localised’ lighting (like a spot light for example).”
This two parts tutorial will explain everything you need to know about baking ambient occlusion to your models with Blender 2.5.