The engine creates this world segment by first generating a height map based on the co-ordinates of the player that looks a little something like this:
Then, based on the height information it receives, it creates a texture file based around the current biome that the player is in:
Once this has been done, it creates the 3D ground and textures it underneath the player. Once this has been done, the players co-ordinates are used to generate the trees, shrubs, etc, around the player and you get the end result:
Looking good, don't you agree? More soon!