Optical camouflage is a hypothetical type of active camouflage currently only in a very primitive stage of development. The idea is relatively straightforward: to create the illusion of invisibility by covering an object with something that projects the scene directly behind that object.
Although optical is a term that technically refers to all forms of light, most proposed forms of optical camouflage would only provide invisibility in the visible portion of the spectrum. Prototype examples and proposed designs of optical camouflage devices range back to the late eighties at least, and the concept began to appear in fiction in the late nineties.
The most intriguing prototypes of optical camouflage yet have been created by the Tachi Lab at the University of Tokyo, under the supervision of professors Susumu Tachi, Masahiko Inami and Naoki Kawakami. Their prototype uses an external camera placed behind the cloaked object to record a scene, which it then transmits to a computer for image processing. The computer feeds the image into an external projector which projects the image onto a person wearing a special retroreflective coat. This can lead to different results depending on the quality of the camera, the projector, and the coat, but by the late nineties, convincing illusions were created. The downside is the large amount of external hardware required, along with the fact that the illusion is only convincing when viewed from a certain angle.
Creating complete optical camouflage across the visible light spectrum would require a coating or suit covered in tiny cameras and projectors, programmed to gather visual data from a multitude of different angles and project the gathered images outwards in an equally large number of different directions to give the illusion of invisibility from all angles. For a surface subject to bending like a flexible suit, a massive amount of computing power and embedded sensors would be necessary to continuously project the correct images in all directions. This would almost certainly require sophisticated nanotechnology, as our computers, projectors, and cameras are not yet miniaturized enough to meet these conditions.
Although the suit described above would provide a convincing illusion to the naked eye of a human observer, more sophisticated machinery would be necessary to create perfect illusions in other electromagnetic bands, such as the infrared band. Sophisticated target-tracking software could ensure that the majority of computing power is focused on projecting false images in those directions where observers are most likely to be present, creating the most realistic illusion possible.
Creating a truly realistic optical illusion would likely require Phase Array Optics, which would project light of a specific amplitude and phase and therefore provide even greater levels of invisibility. We may end up finding optical camouflage to be most useful in the environment of space, where any given background is generally less complex than earthly backdrops and therefore easier to record, process, and project.