So even the level geometry (maybe a pillar) could cast a shadow to your moving character while the character also casts shadows to the pillar.
per-pixel simply means that lighting does not work per vertex / polygon. It calculates the bright and darker spots on the model for every pixel and thus results in more realistic and better looking lighting scenarios.
Well ok but at what cost ?
I tried this high quality rendering engines but I got a very low frame rate on an old but not that old system ( ATI Radeon 9500)