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Oh. That makes more sense. I always imagined it like a pod- you climb in, it shuts and brings up the sim. Kinda like Fallout 3's Tranquility lane, though more like a cryo-pod.
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Yeah. The explanation given is that the environment is formed by a Pneumatic Riser Field, and given a holographic overlay with the most advanced holographic tech the UNSC has. How Covenant enemies work in Invasion or how respawning works, I don't know.