The simple version is you make a 3D scene or character, like something out of a video game, and superimpose it over actual footage.
In order for it to not look like you just pasted an image over actual footage, you need to get the lighting just right. They’ll generally recreate the scene in 3D, including the positions of the lights, and then do their best to match the lighting intensity/color/quality so that the 3D elements don’t pop out against the background. To get them looking realistic they’ll simulate actual light and the ways it interacts with different materials in an expensive process that can take months of computing.
Once you get the 3D portion looking like it fits with the rest of the scene, you start to edit out the stuff you’re pasting it over. This is why green screens are so useful, they’re a clear indicator of what you’re absolutely removing from the scene and replacing with CGI.
There’s always little details that need to be edited too, like removing wires or putting things on different layers to make sure that a CGI character in the background doesn’t overlap something real in the foreground. In big budget productions this might mean a small army of VFX people literally going frame by frame and editing things out using Photoshop.
After all that you’ve got a realistic 3D render superimposed over the actual footage that has been combed through by a bunch of artists to remove anything that doesn’t look right.
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