The smooth shading mode is nice, but often times it seems to leave ugly marks where edges are. it doesn't do that between every face, but it does for some faces. I tried flipping normals but all that does is make it lighter or darker, but doesn't actually smooth it out. I tried making all the faces merged, but that didn't help.
2 Answers
You need to add an edge split modifier to make the mesh look right.
Method 1 - modifier
Select Mesh
Add Edge Split modifier
Method 2 - specify shading
Another method you can use it a bit more manual and not a one click solution but it will work just as well in this case.
Select the mesh and go into edit mode.
Select the top polygons that make up the flat surface
Set their shading to flat in the tool panel on the left (t)
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$\begingroup$ you can also do this by adding edge loops this will help a bit $\endgroup$– VaderCommented Apr 4, 2014 at 1:25
The reason this is shaded oddly is because you have connected faces with very different normals. The reason it looks "wavy" is because (I suspect) you have a subserf modifier on the mesh.
You have two options to fix this while keeping smooth shading on all faces:
Disconnect the faces (edge split).
Add more faces in between to make the normals more consistent (supporting geometry).
From left to right: Normal cylinder, subsurfed cylinder, subserfed cylinder with supporting geometry.
Tab
> Edit mode >A
> Select all >Ctrl+N
> recalculate normals) $\endgroup$