Many gamers overlook this core factor of games development unless of course you have a keen interest in the programming of a game instead of the visual side. The game engine is just like a car engine, it brings all the components together to work as one but it also acts as the brain of the game. Its pre-coded with scenarios and as the player acts them out it takes the appropriate measures.
A game engine is made up of many key elements and i shell list the main ones and how the are used.
The first is the obvious and that is 'meshes'. Anyone who knows anything about game development knows what this is and if they don't they need to give up and start a career as a nun or priest or something. Meshes is the solid virtual mass made up of triangles (or poly's which is 2 triangles formed to make a quad) to create shapes of buildings,characters,objects etc.. Using another key element called scripting (possibly the biggest element) programmers can move or control other elements and its the scripting that makes the game work full stop.
The main big function of an engine that defines the realism of a game is the physics component. This controls basic physic simulation including collision detection, rigid body animations and vehicle physics but these features are always used in each engine and neither does each engine provide them.
Other Elements that are key in a game that a game engine gives are Texturing and Lighting. The texturing at least in my opinion is the most important factor in the whole engine as it gives realism to otherwise lifeless generic grey models. Of course though mesh is still required so they all need each other. the texturing in the engine connects with another element called Lighting which does what is says on the tin. Combined with normal and specular maps a game engine can give depth to models and textures using the lighting to create a fantastic illusion or 3d on a 2d surface.
Moving off key elements as there are many more but its one of those snore factors if talked about to much. Its methods of game creation that i didn't really want to have to talk about as it is quite confusing and although important is fairly uninteresting. I'm talking about subtractive and addictive in which this normally refers to environment creation.
Addictive involves the creation of a void in virtual space. Within this space game developers create what i guess is best described by saying imagine a plot of land in the middle of the country.. when builders come to build the house they wouldn't put the furniture in place first and then build around it, they would first build the house then fill it with objects. That's exactly what it is its the addition of a space in non space if that makes sense, i did say it was rather confusing.
Subtractive is merely the opposite, i will use the field as an example again. This time imagine theres a solid concrete block in the middle of the field well instead of adding objects to the scene you essentially carve away the block to create space in the mass.
When it comes to game engines theres always that difficult decision for companies of whether to create and in house engine or purchase licencing for an external one. Both have there benifits and depending on the engine some more than others... the advantages of buying a game engine is a company can get straight on with the games and not have to spend time fiddling about with troublesome game engines development. Another advantage is it will more than likely not only have what you need but also reasonbly bug free.
The disadvantages are firstly the obvious one... you have to pay for it, though granted to create a system it would probably cost more in man power but also the modding capabilitys are limited and customising to the needs of a forever changing industry may not be the case. There is the added perk though of creating an in house engine and that is the company not only can easily manipulate the software but they can licence it off to other companys.
The issues with next gen game engines are the same as the problems faced with the last gen engines and so on. More power, more efficency and better quality of game all of these factors depend entirely on how good the engine is and always will. Curse you cycles!!!