Yeah, because each pixels is lighted, instead of each vertex. It's pixel perfect lighting. Harder to achieve than normal stuff, but worth it in many cases :) I have a heightmap to normal map convertor in my sig. It comes with a example heightmap, so you can see.
Also, check out L_Draven's post about his normal mapped characters.
http://www.blitzbasic.com/Community/posts.php?topic=35017
Most techniques used for normal mapping characters and such, require a high poly version of the character, with all the details made from polygons. This detail is then turned into a normal map, which simulates the detail. Looks impressive :) I think only the high-end 3d packages have this ability though...
Also, to light a model using per pixel lighting, you need to use entity colour, to move the light source.
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