Brett Thomas has a pretty good article on Bit-Tech.net about ray tracing. It is evidently the shape of things to come and this article will give you an overview of how it works.
Currently, most of our computer graphics are done by pixel shading, a very, very processor intensive way of going about things. Ray tracing is supposedly better and we are at the point where it is possible. The calculations needed to accomplish ray tracing are massive, as well, but you don't have to perform so many of them to render good, or even great, graphics.
I have messed with ray tracing in the guise of various graphics editing programs and I must say that I don't understand it very well. However; it is amazing how much more realistic one can make an animated frame using it. I guess I'm trying to say I see at least some of the potential of this scheme. Whether or not it is the next big thing, it is coming, as the chosen route ahead by those who build our graphics hardware.