When you bake an AO texture, you are baking it in the model's space, all around.
When a game does AO in real time, it's called Screen Space Ambient Occlusion, and it's not the same effect. It operates as a post processing effect
on the entire rendered image.
Right, but I think what vargatom is saying is that you generally don't want AO to prevent direct light from illuminating the surface. For example if a character lights a cigarette in the dark, the nostrils shouldn't remain black. When AO is simply multiplied into the colormap, this kind of lighting is impossible to achieve.
The thing with AO is that it has no basis in reality. It just darkens certain spots of a model, and makes it more eye pleasing. It has a nice way of really bringing out the details in a model, but it doesn't attempt to model the real properties of light.