For those interested in this topic, I suggest HazMat as an interesting case study - developed by Carnegie-Mellon for the Fire Department of New York to help with training and planning to deal with hazardous materials events. HazMat is a spin-off of the BioHazard which has/had a similar purpose. Another big academic player in this space is the USC Institute for Creative Technologies . They have done several projects for the Dept. of Defense, Dept. of State, and other federal sponsors. This topic was also discussed in a Scientific American article called "If Smallpox Strikes Portland..." which mentions the work of Los Alamos National Laboratories on the EpiSim project. The US isn't the only user of this technology. Information about FoodForce is available on their website . The Australian Defense Force has ADF Aviator which is similar in use and purpose to America's Army. While America's Army is now supported by a commercial development company, it originated in the Moves Institute of the Naval Postgraduate School. Proof that many good projects come from the oddest places. The military has a relatively long history of adopting this technology and these development outputs. The use of MarineDoom (a USMC customized version of the game DOOM) was described in the 1997 Posture Statement. The current USMC Infantry Toolkit includes several tools heavily influence by game engine technologies and techniques. More recently, with the combat in Afghanistan and Iraq, a number of simulations have been developed both for tactical training purposes and for planning development - see Simulating Fallujah . An economic point is that all of this has led to an interesting dual-use model of development where vendors develop products for both for the public market and for the DoD - the USMC had modest success with Destineer Studios in this area, the Army had more success with Full Spectrum Warrior Full Spectrum Warrior and Pandemic Studios. There is a less developed interest in the civil agencies than in the DoD/DHS agencies for this stuff. Money and budgets could be one factor. I think another is less experience, less support, for supporting research. One of the more interesting examples is Virtual U which was sponsored by Stanford on a Sloan grant to "foster better understanding of management practices" in colleges and universities. There have been some dual-use sims dual use sims for the Civil Air Patrol.
One form of using this technology is as a very high end presentation medium. Machinima is the practice of creating "movies" using virtual worlds instead of human actors. A famous example is the video that tells the events for which Sgt. Smith earned the Medal of Honor in Iraq. This adaptation of the technology has made it into the pop culture with the Still Seeing Breen video featured on MTV - though clearly an entertainment product notice the use of smoke and fire (accurate underlying physics model), the lip-synch driven by the phonetics tool, and the picture-in-picture technology (good for sims of CCTV surveillance). - Brian