Not quite like voxels, because that implies some higher existence defining a grid. Avoiding that requires a more local definition of existence in terms of adjacency.

I’ve always encoded it thus:

“All matter is information, all information is functional, and perception is therefore the lazy evaluation of the universe.”

In the Greg Egan edition of this thesis, the speed of light emerges as a property of evaluative propagation through a functional universe, and new forms of consciousness are encountered living within the algebraic structure of the cosmos.

Not specifically physics engines but graphics engines use "hidden surface determination" to avoid rendering what's outside the camera view. Frustrum culling, occlusion culling, LOD optimization, space-partition based clipping, etc. This video does an amazing job explaining some of those. https://youtu.be/C8YtdC8mxTU (highly recommended channel too)

graphics engines do, they only display the visible pixels, the others are culled out of the calculation

Which raises the question, if a tree falls in-game, but only non-playable characters are there. Does the falling tree make a sound when it hits the ground?

In most games I would suspect the tree doesn't fall. Philosophy bypassed!

Sound is only perceived, it’s not intrinsic to the event itself.

Do the NPCs in the game perceive sound?