The basic principle behind the method is to calculate the surface normals at the vertices of polygons in a 3D computer model. These normals are then averaged for all the polygons that meet at each point. Lighting computations are then performed to produce colour intensities at vertices. The lighting calculation used by Gouraud was based on the Lambertian diffuse lighting model.
These colour values are then interpolated along the edges of the polygons. To complete the shading, the image is filled by lines drawn across the image that interpolate between the previously calculated edge intensities.
Gouraud shading is much less processor intensive than Phong shading, but does not calculate all desirable lighting effects as accurately. However, Gouraud shading is much superior to flat shading which requires significantly less processing than Gouraud, but gives low-polygon models a sharp, facetted look.
[GOU 71] H. Gouraud, "Continuous shading of curved surfaces," IEEE Transactions on Computers, 20(6): 623-628.