When you buy an option, somebody sold it to you. That somebody is usually a market maker who has no view on direction and does not want one. They manage that by hedging in the underlying, buying or selling shares as price moves to stay neutral.
How much they have to trade, and in which direction, depends on the options they are holding. That is the whole idea.
The two regimes
If dealers are net long options, their hedging works against price. When it rises they sell; when it falls they buy. The effect is damping: moves get absorbed, ranges hold, volatility compresses.
If dealers are net short options, their hedging goes with price. Rises force buying, falls force selling. The effect is amplifying: moves extend, ranges break, volatility expands.
That is the entire mechanism. Everything else is measuring which regime you are in and how strongly.
What the number is
Dealer gamma estimates how much hedging flow a given move produces. A large positive figure means substantial damping. A large negative figure means substantial amplification. Near zero means the hedging flow is small enough not to matter much.
It is an estimate. Dealer positioning is inferred from open interest and assumptions about who holds what, not observed directly, and a provider who presents it as measured is overselling.
What it does not say
It says nothing about direction. A strongly positive reading does not mean price rises; it means moves in either direction meet resistance. A strongly negative reading does not mean a crash; it means whatever move happens goes further.
Magnitude, not direction. Traders who read it as a directional signal are reading a volatility instrument as a price forecast, and the results are about what you would expect.