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The larger textures should only be rendered whe close up in that case, shouldn't they?
Yes - but it is all relative.
The mip maps for a 1024 texture might go 1024, 512, 256... those for a 512 would go 512, 256, 128...
Since the smaller full resolution texture also has smaller mip maps, it will render faster than the larger texture will. Since the engine still has to examine more pixels in the texture to determine what to output for display on screen (think about the delay when you resize a large image in Photoshop, that is effectively what is going on...only much more complicated) - those extra pixels make the process more complicated if it has to read 16 texture pixels to create one screen pixel as opposed to 4 texture pixels. Not taking anything else into account, the texturing stage of the rendering process would be 4 times faster with the 512x512 texture as opposed to the 1024x1024 texture.
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