We studied the ground and excited states of CeO using the restricted active space CI method in the energy range below 25,000 cm(-1). Energy levels are computed to within errors of 2700 cm(-1). Electron correlation effects arising from the ionic core composed of Ce5s, 5p, 4f(*), 5d(*), and O2s, 2p spinors play crucial role to CeO spectra, as well as correlation effects of electrons distributed in the valence Ce 4f, 5d, 6s, and 6p spinors. Here, 4f(*) and 5d(*) denote spinors expanded to describe electron polarization between Ce and O. A bonding mechanism is proposed for CeO. As the two separate atoms in their ground states, Ce(4f(1)5d(1)6s(2))(1)G4 and O(2s(2)2p(4))(3)P2, approach each other, a CeO(2+) core is formed by two-electron transfer from Ce5d, 6s to O2p. Inside this ellipsoidal ion, a valence bond between Ce5p and O2s and an ionic bond between O2p and Ce5p are formed with back-donation through Ce 4f(*) and 5d(*).