Flat shading is a shading model where 3D polygons have no corrective algorithm for reflection of light. Therefore, all of the polygons reflect as a flat surface, giving a blocky look and feel to a model. Because no mathematical correction is needed for flat shading, it requires relatively little overhead when compared to more complex shading models such as Gouraud, Phong, Blinn-Phong, or Lambert.
A number of early 3D gaming systems used flat shading, including arcade systems such as the Namco System 21 and Sega Model 1 (used for Virtua Racing and Virtua Fighter) as well as the PlayStation console (which also had Gouraud shading available which is considered superior to flat shading).
In arcades, flat shading was largely superceded by Gouraud shading, introduced by the Namco System 22 in 1992. Both flat and Gouraud shading were then superceded by Phong shading, introduced by the Sega Hikaru arcade system in 1999.
In the late 90's, consumer PC graphics accelerators quickly adopted hard-coded hardware shaders, using algorithms such as Gouraud to make rendering these algorithms efficient, with all but the earliest 3D-accelerated PC games having some sort of shader applied. Phong shading was later introduced to the consumer PC graphics card market with the ATI Radeon 9700 in 2002, and then to consoles with the Xbox 360 in 2005.