The answer is ray tracing. Ray Tracing is a way of creating images that portray real life by tracing the light rays from and to a source accurately. Although this generation can not be done in real time, the results from it are scarily accurate to true life in some cases.
Povray is a free ray tracing program for Windows, Linux, and OSX. By drawing all the rays of light to and from an object, it traces out scarily accurate looking scenes. Many competitions exist for generating ray tracing images online: One such competition is the Internet Ray Tracing Competition. There you can find images that are extremely advanced, along with the source code and image maps used to generate them.
Recently, the Povray short code contest winners were announced. The point of the short code contest is to generate the best images in less than 256 characters. The results are really incredible.
I had a go at creating my own images last night, just playing around with the tutorials and different possibilities. I documented these images and the source code at my povray page. One of the coolest things about povray is that you can generate the images at any size - from 100x75 up to 1600x1200 or higher.
Povray is a nifty program that lets you create incredibly complex, or incredibly simple images that look stunningly real.