The idea is (as I understand it) to try and remove the need for say lengthy atmospheric soundtracks and other such stuff, by having the system piece together the effect from small inconsequential elements.

As NecroDome points out, it is kind of like a particle engine, but more.

Lets say you want rain... you have this engine and you tell it to spawn rain particles... when that particle hits an object, it becomes something else... lets say it hits water... the particle becomes a ripple type effect and a sound. When it hits grass, it becomes something else (maybe as Chebmaster suggested, a butterfly that flys up out of the grass and off) and a different sound.

So instead of recording an atmospheric sound track that probably loops your program makes one on the fly based on these particles... where they are, what they hit and the events linked to them when that happens. Since this is likely to be random, the effect would be a continuously changing ambience.

Basically, an ambience engine... a particle engine on steroids with the ability to add atmosphere as well as particle effects.

Thats my take on it and I quite like the sound of it.