Ambient occlusion is an approximation of global illumination that emulates the complex interactions between the diffuse inter-reflections of objects. While not physically accurate (for that use full global illumination), this shader is fast and produces a realistic effect.
The ambient occlusion shader essentially fires a number of rays in the upper hemisphere defined by the tangent plane of the shading point and returns the ratio of the hits divided by the total rays as a color. When the ratio of the ray hits/total rays = 0, the output is considered fully unoccluded or 'Bright' (with white color by default). When the ratio of the ray hits / total rays = 1, the output is considered fully occluded or 'Dark' (with black color by default). In between, there is a linear interpolation of the two values.
This attribute changes the direction of the rays being traced. When it is off the rays are traced outside of the surface. When it is on the rays are traced inside the surface.
The most common use for this is to simulate dirt or erosion, as corners and cracks will become darker.
The example below shows a brick road with an Ambient Occlusion ambient_occlesion pass (with Invert Normals invert_normals enabled) multiplied on top of the beauty render to add 'dirt' in-between the bricks.