An engine might have a set of character models. You can skin them any way you want, but the way the characters can move and respond are preprogrammed, and you pick the one you want.
It might have certain types of environments. Buildings, objects, plants, etc. you select what to use and put it together.
An engine can create a map, and determine which parts of the map can be accessed or how NPCs can move around on their own without getting stuck.
Basically, an engine is a set of tools one uses to put a game together. The actual appearance of things can be skins created elsewhere, but those skins sit on a preprogrammed framework that the game developer selected out of the engine toolset.
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