The video demo of CryEngine3’s new soft-body physics engine is being tossed around showing a very realistic model of environment interaction (at least from the mobile object standpoint).
They are specifically modeling a vehicle at the level of individual components rather than simply changing the texture or knocking a random piece of the model off on collision.
Why does this matter?
This matters because this is one step closer to a full blown realtime realistic environmental model of an entire virtual world.
Applying this technology to the entire simulated environment, as well as models within, means that you can have a world nearly indistinguishable from the real thing.
Imagine all the environmental interaction of minecraft in an MMO like Guild Wars 2.
The main challenge is, of course, bandwidth. Sending every player in the viewable area the data of a deformable terrain take quite a lot of bandwidth and leads to tons of lag (and cost).
Network throughput has been a development challenge since the dawn of online gaming.
Multiplayer minecraft works so well simply because the data it’s sending is so small since the block resolution of the world is so low (9 bytes per block).
Here’s the video: