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.
This method of driver forced SSAO causes several rendering bugs in the Source Engine. Most notably, the SSAO shader does not take fog into account in it's AO calculations, producing visual artifacts in scenes with heavy fog.