Ray-tracing is the simulation of light by actually shooting “light rays” around the scene and seeing what they hit, both from the camera and from actual light sources. Normally this is a pixel-by-pixel or photon-by-photon (a “particle of light”) process making it incredibly slow.
Newer video cards (nVidia’s “RTX” series, and some new stuff from AMD) support offloading of some lighting processing via a raytracing style of processing onto the graphics card. This produces incredibly lifelike lighting, very accurate mirror reflections, etc by having the graphics card do the work. A character’s shadow should not look like faked blobs of black any more.
The downside? It’s still kinda new, and not a lot of games are really making good use of it. And since not everyone has raytracing, games still need to run on hardware without as well.
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