This video demonstrates that the human eye (and the visual cortex of human brain) are better at detecting edges and contrasts than they are at determining actual shades of colors. There is a discussion thread about this illusion at Reddit.
The real issue here is that our eyes and brains work to figure out the MATERIAL properties of what we see, not the exact red/green/blue numbers of the pixels (our eyes aren't simply photometers). The rgb values will change with lighting, and our brains are very good at overcoming such lighting effects and extracting the underlying material's color. When you cover the contrast edge with a pencil, your eyes perceive the different shades on either side as different levels of illumination, and your brain decides that the same material color is present on both sides.
@whitcwa: BTW, if you like the illusion you posted, there's a whole bunch of them at Michael Bach's site: (warning: your eyes will hurt)
AlejoHauser, the same colour IS present on both sides. The only variation in colour (actually intensity) is present at the lines. Lemme see if I can do an ascii art illustration...
Dear lady, The same colour is not present. Would it be the same colour, you would be able to take out the 2 middle colours and see no difference. The minimal difference in colous causes the brain to perceive the difference that is there as a difference in light or shadow. Therein lies the illusion.
This one is not based on the Cornsweet-principle. This is just graduations like I had to make when I had to learn to mix colours in paint-restauring class.
http://web.mit.edu/persci/people/adelson/checkershadow_illusion.html?gray
@whitcwa: BTW, if you like the illusion you posted, there's a whole bunch of them at Michael Bach's site: (warning: your eyes will hurt)
http://www.michaelbach.de/ot/index.html
Alejo
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If you cover the area where the intensity changes it destroys the illusion that the colour is different on both sides of the line.
The same colour is not present. Would it be the same colour, you would be able to take out the 2 middle colours and see no difference. The minimal difference in colous causes the brain to perceive the difference that is there as a difference in light or shadow. Therein lies the illusion.
http://en.wikipedia.org/wiki/Cornsweet_illusion
http://www.instructables.com/id/Shady-Optical-Illusion/