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In order for the armature to modify the mesh, the vertices of the mesh must be assigned to a bone. There are 2 ways a vertex can be *directly* influenced by a bone: 'weight painting' or 'envelopes'. Weight painting is the most used method, and offers much more refined control than using envelopes. What is meant by 'weights' in weight painting is the 'strength of influence' a bone has over a vertice. Vertex groups are used for containing the weight information (values between 0 and 1) for the vertices, which can be assigned by manually selecting vertices and adding them to the group or by using the weight paint tool/mode. If a vertex group has the exact same name as a bone, it will automatically be assigned to that bone. [[*note that the way blender currently handles vertex group weights is to automatically distribute the weights internally. Two overlapping weights of 1.0 will automatically behave as if they were each 0.5, which can be confusing since what you see is not always what you get. This is why I wrote this script.]] Envelopes are areas of influence around a bone within which vertices will be influenced with a value of 1. This is the default weight method for any bone with no vertex groups assigned to it (as long as the 'envelopes' option is enabled on both the modifier and armature object). Envelopes can be seen as transparent white borders by enabling the 'envelopes' display option for the armature bones, and can be scaled using [alt+s]. Overlapping envelope influences will be evenly distributed to a total value of 1.
There are 2 ways to connect an armature to a mesh with the armature modifier. One way is to simply select the mesh and choose the armature modifier from the modifiers menu. The other is to parent the mesh to the armature [ctrl+p>>armature]. Parenting will give you the option to auto-generate weight maps (as vertex groups) using either envelope influences, or 'bone heat' which can produce very nice default weights based on bone proximity. The armature modifier can then be accessed by clicking 'make real' on the virtual modifier which will appear in the stack. You will then have a weighted mesh which is now a child of the armature object (so you can move the armature in object mode and the mesh will follow along).
Header Options
Name Field The name given to the modifier node.[Scene] (button) Toggles the visibility (effect) of the modifier while rendering.
[Grid] (button) Toggles the visibility (effect) of the modifier in the 3D view.
[Edit] (button) Toggles the visibility (effect) of the modifier while in edit mode in the 3D view. Enabling this button will also produce another circular button to the right which will allow you to edit the vertices in their deformed state (known as crazyspace).
Up/Down (button) Moves the modifier higher or lower in the modifier stack.
Modifier Options
Apply (button) Applies the effect of the modifier to the mesh data itself, removing the modifier.Copy (button) Duplicates the modifier.
OB: The name of the armature object that will be used by the modifier to deform the mesh.
VGroup: / Inv (button) The vertex group on the mesh object which the armature influence will be limited to. With the 'Inv' button selected the influence will be inverse.
Vert.Groups (button) When enabled vertex groups will be used for deformations (this setting can also be found in the armature options).
Envelopes (button) When enabled envelopes will be used for deformations on all bones without any vertex groups assigned to them (this setting can also be found in the armature options).
Quaternion (button) This option uses a technique called Dual Quaternions which can help prevent pinching of the mesh caused by bone rotations.
B-Bone Rest (button) When enabled segmented B-Bones will deform the mesh while in their home/resting position.
MultiModifier (button) This option is meant for combining the armature modifier with other modifiers without getting double transformations. I have not yet found a scenario for which to use it (the meshdeformer can be used without it).