Let’s get started understanding what these two terms mean:
Baking, in general, is the act of pre-computing something in order to speed up some other process later down the line. Rendering from scratch takes a lot of time depending on the options you choose. Therefore, Blender allows you to “bake” some parts of the render ahead of time, for select objects. Then, when you press Render, the entire scene is rendered much faster, since the colors of those objects do not have to be recomputed. [cit. Blender.org Docs]
Ambient occlusion is a shading method used in 3D computer graphics which helps add realism to local reflection models by taking into account attenuation of light due to occlusion. Ambient occlusion attempts to approximate the way light radiates in real life, especially off what are normally considered non-reflective surfaces. [cit. Wikipedia]
On KatsBits.com has been published a very useful tutorial for Blender 2.5 about these processes.
It’s pretty clear and it’s divided in two separate pages. In the first beginners will have the opportunity to learn basics steps for reaching a simple but nice render result, while, in the second one, more experieneced users can read about some common pipeline problems and, obviously, how to fix them.