This illusion is best observed on a 24-bit monitor.
The circle should appear brighter on the left and darker on the right. It is actually a uniform color. The background is a linear gradation from black to white, corrected for the logarithmic sensitivity of human vision.
The circle appears to change luminance because of the change of sign of local contrast across the border of the circle. Local contrast-sensing neurons sum nonlinearly to give the illusion of a gradient across the circle.
You can change the luminance of the circle with the Increase Circle Luminance and Decrease Circle Luminance commands. For a change of pace, you can make the background a constant luminance and the circle a linear gradient with the Invert command. You can show just the outline of the circle with the Frame command, and fill the circle with the Fill command.
References
Shapley, R. & Gordon, J. (1987). The Existence of Interpolated Illusory Contours Depends on Contrast and Spatial Separation. In S. Petry & G.E. Meyer (Ed.), The Perception of Illusory Contours (pp. 109-115). New York: Springer-Verlag.
