Atmospheric effects can greatly enhance the realism of a computer generated image. Without any atmospheric effects an otherwise technically excellent computer genererated image will often look unrealistic simply because it's too clear and therefore looks artificial.

In the real world light loses colour as it travels and distant objects therefore have less vibrant colours than close ones.

Ray-tracing packages offer a number of high-quality atmospheric effects but these are generally not currently possible to use in real-time systems (e.g. volumetric fog lights with random noise, which can be used to give a smokey lighting effect). However, with a little ingenuity it is possible to fake many such light effects using transparent coloured geometry and texture maps. This can work very well for an interactive virtual world using a non ray-tracing renderer.

The most commonly used atmospheric effect used in 3D virtual worlds, and in particular interactive ones, is Z-depth/horizontal fog. The 3D artist sets the distance at which object should be totally obscured (the visibility range), and often has control over the way the fog works (linear or exponential) and its colour. Many interesting effects are possible using coloured fog.

Scene without fog:

Same scene with slightly bluish fog: