Screen Space Ambient Occlusion (SSAO)

Ambient Occlusion (AO) is a type of lighting technique applied in-game to create more realistic lighting. AO simulates soft shadows created by two surfaces that are close together. Typically AO is accomplished through Screen Space Ambient Occlusion (SSAO), which is a simplified way to fake realistic AO with shaders in a process fast enough for real-time rendering.
SSAO works by examining an onscreen pixel, and then comparing its location in the depth buffer (i.e. how far it is away from the player) to the pixels around it. Pixels which are close together but not coplanar (on the same face) are shaded to simulate soft shadows. To maintain playable framerates, it is not possible to sample every pixel every frame, so random sampling is used, which will inevitably create noise/grain which may be more noticable when the player moves around.
Enabling Nvidia's Forced SSAO
SSAO cannot be controlled through the video options within a Source game, because Source does not have a built in SSAO shader. Instead, SSAO must be enabled by Nvidia's video drivers in the Nvidia Control Panel.

Supported games
All Source engine games except Portal have driver profiles to enable Nvidia's SSAO. SSAO in Portal can be forced on by editing Portal's driver profile with an external application such as nhancer.
Graphical Bugs
Nvidia's SSAO implmentation was designed to be general purpose, and as such, does not take a lot of Source's stock effects into account during it's calculations. This leads to bleeding in scenes with heavy fog. As a fault of the actual SSAO shader, Ghosting and other related artifacts, pictured on the image below, can occur. It is recommended that you use a more modern SSAO implementation that takes the scene's normals into account if you intend to design your own shader for use in Source.