How do developers get such realistic environments in video games?

Video game artists begin developing the 3-D models that will
make up the game world using a software application such as
3D Studio Max. Richly detailed texture maps are created for
each object.

Many 3-D games use a first-person or an over-the-shoulder
perspective. You, as the game player, either see the world
from the character's point of view or seem to be hovering in
the air slightly behind the character you are controlling.
As your character moves around, you see the world of the game
stretch out into the distance. But what you are really seeing
is a very clever illusion reminiscent of the backlots of
Hollywood!

The world that the game character can actually interact with
is a very defined area. If you could pull the camera view up
in the air, you would see that the play area is completely
self-contained. Other parts of the world that you can see in
the distance are actually two-dimensional images mapped onto
a flat surface that surrounds the play area like a barrel.
The sky is created in the same way, by mapping the sky image
onto a large dome or cylinder that fits over everything else.