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Your eye has an incredible ability to see in low light. This means that you can very often see details and shadow areas with your naked eye, while your camera will render those areas as black, and featureless. The auto lighting optimizer applies post-processing to your image in camera to brighten shadow areas in your image. Note that it doesn't just brighten the blacks in your image; it actually figures out where the shadowy areas are in your scene, and it brightens those, without washing out all of the blacks in your picture.
The auto lighting optimizer controls are located in the second page of the shooting menu. They are right here; Auto Lighting Optimizer. I can see that I'm currently set to a middle setting; what Canon calls Standard. I've basically just got three settings: Low, Standard, and High, and Off. I can also tell it to Disable the Auto Lighting Optimizer during manual exposure. By default, Auto Lighting Optimizer is turned on for program, shutter priority, and aperture priority, and Disable during manual; I can turn that off, and then it's on all the time.
This is another case where you might want to do some experiments to decide what you think about the amount of brightening that the auto lighting optimizer is doing. Set up a scene with some good amount of dynamic range, some nice shadows in it, some bright areas, and shoot it with all four settings here, and see which you like better. Remember, the auto lighting optimizer is only affecting JPEG images; it has no impact on RAW. So if you are a RAW shooter, you don't really need to think about this at all. If you are a JPEG shooter, though, the auto lighting optimizer can really make a big difference in high dynamic range situations, so it's worth doing a little experimenting to see how you would like it set.
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