The Tower of Hanoi puzzle was invented by the French mathematician Edouard Lucas 
  in 1883. We are given a tower of eight disks, initially stacked in increasing 
  size on one of three pegs. The objective is to transfer the entire tower to 
  one of the other pegs, moving only one disk at a time and never a larger one 
  onto a smaller. However, this approach is going to examine the movement as follows:
Further, Think of the pegs as being arranged in a circle.

 
  Demonstration Applet (Using strictly clockwise motion)
Recursive solution
  Let call the three pegs Src (Source), Aux (Auxiliary) and Dst (Destination). 
  To better understand and appreciate the following solution you should try solving 
  the puzzle for small number of disks, say, 2,3, and, perhaps, 4. However one 
  solves the problem, sooner or later the bottom disks will have to be moved from 
  Src to Dst. What makes this differ from the previous approach is that all remaining 
  disks, have to be moved to Aux. To reach Aux, they all had to be previously 
  stacked on Dst in decreasing order. After moving the bottom disk from Src to 
  Dst these disks will have to be moved from Aux to Dst. In order for that to 
  occur, you have to move the disks from Aux, to Src then Dst. Therefore, for 
  a given number N of disks, the problem appears to be solved if we know how to 
  accomplish the following tasks:
Move the top N-1 disks from Src to Dst (using Aux as an intermediary peg) 
  Move the top N-1 disks from Dst to Aux (using Src as an intermediary peg) 
  Move the bottom disks from Src to Dst 
  Move the top N-1 disks from Aux to Src (using Dst as an intermediary peg) 
  Move the top N-1 disks from Src to Dst (using Aux as an intermediary peg) 
This actually serves as the definition of the function for a clockwise motion. The function is recursive in that it calls itself repeatedly with decreasing values of N until a terminating condition (in our case N=0) has been met. To me the sheer simplicity of the solution is breathtaking. For N=2 it translates into
Move from Src to Dst 
  Move from Dst to Aux
  Move from Src to Dst
  Move from Aux to Src
  Move from Src to Dst
Recurrence relations
  Let TN be the minimum number of moves needed to solve the puzzle with N disks. 
  From the previous section T2=5 and T3=21. Now let us try to derive a general 
  formula.
The recursive solution above involves moving four times (N-1) disks from one peg to another and making one additional move in between. It then follows that
TNTN-1+1+TN-1+TN-1+TN-1 = 4TN-1+1 
  In other words,
TN = 4TN-1 + 1 
  Thus we can define the quantity TN as
T1 = 1
  TN = 4TN-1 + 1 for N>1
Thus we may compute T1 = 4T0 + 1 = 1, T2 = 4T1 + 1= 5, T3 = 4T2 + 1 = 21 and so on sequentially.
The above expression is known as a recurrence relation which, as you might 
  have noticed, is but a recursive function. TN is defined in terms of only one 
  of its preceding values. This function can be made into a geometric series such 
  that the following:
  Summation(4^n-1, as n is from 1 to n). This geometric series is not convergent, 
  for the ratio is greater than 1. This can be made into a recursive relationship.
  
  Sources:
  Algebra Lab 
  Cut the Knot
  Melvin Fitting