There’s a thread in that Slashdot story on the development of a photorealistic CGI TV show on speculation as to what was missing from the Final Fantasy movie that prevented it from appearing real.
Miloslaw Smyk conjectured that perhaps it was the lack of subsurface scattering (also called radiosity). If you haven't heard of it (and I hand't until now), subsurface scattering takes into account the slight translucency and reflective properties of skin and other objects:
All non-metallic materials are translucent to some degree. This means that light scatters inside the material before being either absorbed or leaving the material at a different location. This phenomenon is called subsurface scattering. […]
Miloslaw linked to this page with examples of subsurface scattering (from where I also got that definition above). In this case, a picture can probably easily explain what I'm attempting to put into words. Check out this rendering (with subsurface scattering) of three glasses of milk. The glass on the right uses traditional rendering techniques (for references) and it resembles paint. But, the glasses on the left are skim milk and whole milk, respectively.
For more rendering goodness peep the animations as well. In particular, I was most impressed by the fire renderings (14 MB DivX) and the assorted renderings with subsurface scattering (12 MB DivX). CG fire can be so tough to pull off (in fact, I can’t recall a movie with effectively rendered fire), but my hope is that some of these new techniques may soon make it into upcoming movies.
I thought the fire rendering in Shrek was pretty good.
subsurface scattering is not the same thing as radiosity. Those things are not even very close related.