A lot of the environments are dominated by the untamed wilderness, which look great thanks to Bethesda's overhauled foliage system. In previous games the team licensed the SpeedTree middleware to render the forests. For Skyrim, they've created their own platform that allows artists to build whatever kind of trees they want and to dictate how they animate. Artists can alter the weight of the branches to adjust how much they move in the wind, which is an effective way of, for instance, actualizing the danger of traversing steep mountain passes with howling winds violently shaking branches.
The Radiant AI technology introduced in Oblivion went a long way toward making the NPCs act in realistic ways. If you followed a citizen through his daily activities, you would likely witness him or her eating breakfast, setting out to work the land, stopping by the pub for a pint after work, and then returning home to hit the sack.
In reality, the technology driving NPC behavior wasn't overly sophisticated. Bethesda could only assign five or six types of tasks to the townspeople, and there wasn't a lot of nuance to their actions. In Skyrim, the characters have much more defined individual personalities.
You won't find townspeople loitering aimlessly in town squares anymore. Each denizen performs tasks that make sense in their environment. To impart the towns and cities with a greater sense of life, Bethesda has populated them with mills, farms, and mines that give the NPCs believable tasks to occupy their day. In the forest village we visited during the demo, most of the citizens were hard at work chopping wood, running logs through the mill, and carrying goods through the town.
