In a eukaryotic cell, DNA associates with various proteins to form a tightly packed, highly condensed structure called chromatin. Chromatin is divided into two types, depending upon the level of compaction.

Heterochromatin, concentrated in the centromeres and telomeres, is highly condensed, gene-poor, and infrequently transcribed into RNA. 

In contrast, euchromatin, which constitutes a majority of the chromosomal material, is less condensed, gene-rich, and actively transcribed. 

Heterochromatin and euchromatin are separated by barrier DNA sequences. These sequences prevent the spread of heterochromatin and maintain stable gene expression patterns. 

During DNA rearrangement events, such as transposition, a piece of euchromatin can be translocated near a heterochromatin region without any adjacent DNA barrier sequences.

In such events, genes that are typically active are ‘silenced’ or ‘inactivated.’ This phenomenon is known as the ‘position effect.’ 

For example, in Drosophila, red eye color is encoded by the ‘white’ gene. Occasionally, ‘white’ is moved near a heterochromatin region without any DNA barrier sequences in between. 

When flies inherit this genotype, during their early embryonic stages when heterochromatin is first formed, the absence of barrier DNA allows the heterochromatin to spread into the neighboring euchromatin. 

However, spreading occurs to different extents in different embryonic cells. This variation in heterochromatin spreading yields cells that exhibit two distinct phenotypes- one which actively expresses the ‘white’ gene and others that do not. 

Once established, all of that cell’s progeny inherit this state. This results in the mottled, or mosaic, eyes in the adult flies. 

This phenotype variegation, caused by the gene silencing mediated by a change in the position of the ‘white’ gene within the chromosome, is called ‘position effect variegation.’ 

First established in Drosophila, this phenomenon has now been observed in many eukaryotes, including yeasts, plants, and humans.