Occlusion is a technique for calculating the shading of surfaces based on how occluded it is; depending on the settings, any receding or recessed areas would be shaded darker (or lighter). Occlusion makes its calculations by firing a number of somewhat random rays and calculating shading for a pixel based on how many rays intersect with neighboring surfaces. There are a number of settings on the Map Editor dialog to control just how the occlusion layer shades the surface, producing a wide variety of effects. It is also useful to change the layer Effect where the contributions of other layers can be controlled by the occlusion layer. The Occlusion Procedure can be used for adding a dirty shadow look to materials used for final color render.
Using the Occlusion Procedure, you can add that extra level of realism to the simplest of materials. For instance in the images below, the image on the right uses Occlusion Procedure as Alpha layer with the chair cushion color and a darker version of the same color for the background creating some dark shadowing in all the nooks and crannies where you expect dirt to accumulate.
You can set the Occlusion on the Procedure drop-down menu of the Map Types section of the Map Editor dialog.