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The video above shows the basic process (no audio) of using Blender 2.49 to bake an Ambient Occlusion map for a terrain mesh segment.
The result is then saved to a loss-less image format which can then be used to further develop final artwork for application to the terrain in-game.
Note that the process shown below applies to Blender 2.46 up to Blender 2.49, versions both prior and post these version require slightly different approaches to the same action.