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When the knob on the top of the Virtual Boy is rotated to adjust the inter-pupil distance (the center-to-center distance between pupils), the two display units move closer or further away from each other.
When the focus slider is slid back and forth, the lens in each display unit moves relative to the stationary LED display.
The Virtual Boy's 3D capabilities are a result of an effect known as parallax, in which a single image is viewed along different lines of sight.
This process is the basis for the method by which the human eye is capable of perceiving depth. Each eye receives a slightly different image (being a few inches apart and along different sightlines). The brain then interprets these two images into a single 3D image. This effect is called stereopsis.
The Virtual Boy uses each display to send a slightly different image to each eye, thereby creating a stereoscopic 3D image.
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