Ray Tracing is a method to create three-dimensional images using a computer. Simply put, you build a "virtual" set in 3D, place your "virtual" camera (or eye) within the set, and then use mathematical algorithms to generate the scene. This is done by simulating individual "rays" leaving the camera/eye, which bounce off the objects you've placed in your virtual world. It sounds pretty complicated, but if you have a basic understanding of geometry, trigonometry, the three-dimensional coordinate system, vectors, and algebra, you should do just fine :)
Here is one of my first ray-traced images I created, using a ray-tracer I wrote myself in the "C" programming language.
Later on, I discovered the wonderful shareware ray-tracing software package POVRAY. Using this tool, I was able to generate the following image. It's one of my favorites. And yes, those shadows are exactly what you would see if you actually were to carve such a block of wood and shine a light on it from those three angles. Pretty cool, huh?