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Terrain is beautiful, and architecture is nice, but if there is nothing to interact with, your players will soon grow bored. The biggest attraction of video games is that the player is not just a displaced and placid viewer. If he wanted to play a game where he just sat back and let you entertain him, he would have rented a movie instead.
Encounters take many forms. There are passive encounters that sit and wait for the player to come to them, and there are active encounters that search out the player wherever he may be hiding. Passive encounters can take the form of a lock on a door or a peasant standing in a field waiting for the player to walk by and ask him the time of day. Active encounters can be armed enemies doing a room-by-room search of a base or one player meeting another in a massively multiplayer game. Whatever the encounter may be, these will determine the flavor and potency of your gameplay more than any other facet of your level.