Passive 3D Using Polarization
Polarized 3D, or passive 3D, is the technology that's typically used by cinemas to show modern 3D films like Avatar or Alice in Wonderland.
In a projection system, such as that at a cinema, two images are projected onto the screen, and each image is polarized in a different direction. You wear polarized glasses with lenses that are polarized in opposite directions, each lens matching the polarization of its corresponding image. The polarized lens covering your left eye is polarized to block the right image, and the polarized lens covering your right eye is polarized to block the left image. So your left eye can only see the left image, and your right eye can only see the right image.
Some 3D-capable projectors are actually comprised of two projectors - one for the left-eye's image and one for the right-eye's image. But many 3D projectors consist of a single projector running at a higher refresh speed, and alternately showing a frame for the left eye (with the polarization for the left lens on the polarized glasses) and a frame for the right eye (with the polarization for the right lens on the polarized glasses). Some very high-resolution single projectors can also display the left and right images together (i.e. no need to alternate between them).
There are also two types of polarization that are used in polarized 3D technology: linear polarization and circular polarization. In the cinemas, IMAX uses linear polarization and RealD uses circular polarization. Circular polarization has the advantage of allowing you to tilt your head a bit more before the 3D image suffers, whilst linear polarization is more fussy about your head being upright. Head tilting with linear polarization may also be more inclined to give you a headache, as it noticeably affects the light levels coming from the screen. However, since 3D films are recorded and displayed with the assumption that the left and right eyes will be watching them at the same horizontal level, the 3D doesn't work too well if you tilt your head a lot anyway. If you're interested, I've written a brief explanation of linear and circular polarization, but it's not something you need to understand unless you want to.
How well does it work?
Polarizing technology works very well - you'll appreciate this if you've seen a 3D film in a good cinema with polarized 3D technology. And the glasses are cheap and light, which is good. But passive 3D doesn't seem to be the mainstream technology for home 3D.
Showing two images with different polarizations is a little tricky on a flat-screen TV, so, at the moment, passive home 3D technology typically requires a projector (keep reading though, as this is changing). For polarized 3D you can't just use any projector either... It needs to be a 3D-capable projector that uses polarizing technology as opposed to active-shutter technology (described in the next section). Most 3D projectors use active-shutter technology, so the polarizing ones are pretty hard to find for the home.
To use a polarizing projector you also need a special "silver screen", which has an aluminium coated surface that reflects light in a way that preserves its polarization. Silver screens are the screens that were traditionally used in cinemas, and that are making a resurgance again now that 3D cinema is becoming more popular. The trouble is that these silver screens cost several times more than standard projector screens.
Going the projector route, polarized 3D technology for the home appears to be a pretty expensive business that's really only for enthusiasts at the moment.
However, it's looking like passive 3D might actually take off on regular flat screens as well... LG are soon to release a 47" passive 3D LCD screen - the LD950. I believe this works by assigning half the lines of pixels on the screen to the left image, and half to the right image i.e. line 1 is for the left image, line 2 for the right, line 3 for the left etc. This approach does effectively halve the resolution when it's running in 3D mode, from HD to standard definition, but the cheap, light glasses make it a pretty appealing option in my opinion.