Simply put, real time means occuring in a span of time capable of considering real
... ray tracing is an image rendering algorithm that produces lifelike images by calculating incident and reflected photon properties from surfaces, with such qualities as reflectivity, diffusivity, and such accounted for to produce an overall image. As such the name in implies, the path of a ray of light is traced from origin to desitnation.
Think POVray, or current Pixar animations or the rendering of King Kong and the T-rex's etc. etc. in movies, these are all ray traced. This is why movie studios like Lucasfilms, Pixar etc. invest heavily in heavy duty rendering farms.
The problem with ray tracing is it is computationally intensive... as such, a single frame can take many seconds, minutes, hours or even days depending on the complexity of the scene. As such, real time (or visually compelling frame rates) are currently not capable using a ray tracing techniques.
Today's rendering engines uses textures, polygons, and shading to emulate the interaction of light with objects by 'coloring' for lack of a better word each pixel based on properties specified by the environment. These give great images, and the quality improves with successive generations of hardware, but various details are lost in the process. There do exist various 'tricks' or techniques to improve say, for example, texture (i.e. roughness of a surface or such) with bump mapping.
Realtime raytracing though will enable cinematic quality gameplay if they can get frame rates high enough....
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