As camera manufacturers started realizing the limits of digital camera sensors, they started trying to increase their range. Today's sensors have a range of around 7-9 stops of light, depending on the manufacturer. It is said, at any given point in time, the human eye can see about 14 or 15 stops of light. This difference between what we see and what a camera sensor 'sees' is the gap technology has been trying to fill, both in terms of absolute range on the sensor and manipulation techniques once the image is captured.
On Canon cameras there is a feature called Auto Lighting Optimizer (ALO). On Nikon cameras the aproximate same feature is known as Adaptive D-Lighting. Other cameras have the same basic feature. While the names are different, the idea is the same; increase the dynamic range presented in the final image.
The Canon Auto Lighting Optimizer functions by bringing out shadow detail as I will show in the following photos. All the photos are cropped down to show the same area and lighting. Lighting was constant and a manual setting of ISO 100, f/11, 1/400 was used on a Canon 7D and Canon EF-S 10mm-22mm lens. The pictures progress from the ALO being Disabled, then Low, Standard and Strong. Note: this function only affects JPEG images as RAW images are intended to give an exact copy of the sensor information. To help with detail, all images were increased by 1 stop of exposure in Lightroom, otherwise they are right out of the camera. Click on an image for a 2000px wide version.
From the first image to the last, the effect can be fairly useful. Notice, however, that the sky in the upper left becomes just a bit more blown out because of the overall dynamic range in the shot. To help give some more data, here are the Histograms from the pictures, in order.
The Histograms show where those highlights are nearing the edge on the right as well as how the dark areas have been marched over as well. There also seems to be a much larger jump from Standard to Strong as evident in the intensity of the light measured.
For those who shoot in JPEG, you may want to experiment with your cameras Auto Lighting Optimizer, Auto D-Lighting or whichever name your camera manufacturer gives this feature. It can be helpful but it is important to know it's limitations.