I would like to know, how dynamic shadows, that 'blend' onto other objects, are created.
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These can be done using shadow mapping. Basically, place the camera at the light source and render the scene into a depth buffer; the resulting buffer identifies all the lit surfaces since they are just the surfaces the light can "see". This texture is then used in the pixel shaders in the main render to mask away light on surfaces behind the shadow map. There are plenty of shadow mapping tutorials on the Web, so consult those for details.