This is based on the Phong calculation (simulation).
Please have a look here:
Move the time slider, as I have animated the Phong Angle (the icon on the right side of the object—in the Object Manager)
More about that:
In short, each polygon has an orientation, typically expressed with something that looks like a nail in the middle of a “board”. Now think about the neighbor polygon also has a vertical nail on its surface. The angle between the two is used to calculate the smoothness of the surface. The larger the angle between the two, the rounder it might look, if not limited by the Phong-tag.