I know that Unreal UDK uses a special tool to create "fractures" inside a block (wall, building, etc...), and using PhysX it automatically manage them.
I think it is a incredible features of most recent engines (Crytek, Unreal UDK, etc...).

Game Massive Creek:
http://www.massivecreek.com/home/
http://www.youtube.com/user/massivecreek
http://twitter.com/#!/massivecreek
http://www.facebook.com/pages/Massiv...68000596582093