What you do is you bake it directly onto the texture.
You have for instance:
The color map with all the colors, detail etc.
The Ambient Occlusion map, which is pretty much a map with all the shadow information(Its a map that is black and white and its different shades.)
Then in photoshop for instance you create the Color layer and attop of the color layer, you create the ambient layer. Under the layer modes you apply a "Multiply" mode to the ambient layer and what it does is it "darkens" the layer below it accordingly.
The result is as close as "realtime" occlusion as you can get in rad for now...
Notice the example below. Now, the occlusion below is low quality, so the better quality, the better itl look.
Notice also how all the depth is transfered onto the color map.