Many games take place exclusively inside buildings or structures, like tunnels. And many other games involve exclusive outdoor game play. Then there are some games that have a mix of each.
When your game has an outdoor component, you need to represent the terrain, which in game terms is the combination of the topography (hilliness, for example) and the surface (grass, gravel, sand, and so on). The topography is modeled using a 3D model, and the terrain surface appearance is represented by textures.
In addition to representing the ground, you also need to represent the sky, if you want to have interesting outdoor game play. Typically, a construct called a skybox is used to represent all of the sky, from horizon to horizon.