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Well you could say that there are 2 different kinds. It depends what you want.
For example if we take a recent GTA game, 100's of artists were used to make the city and to personalise it. Procedural generation could be used here, but it would be used as an artists tool rather than something running on the game engine as we don't particularly want a different city layout with each game.
So my undergraduate dissertation was on procedural city generation with city zoning:
This tool is used by the artist to create a city whilst allowing control over different aspects if they require it. The city generation is similar to L-systems as seen by Pascal Mueller's work: 
The city zoning works as an image map taking probabilities of zones (commercial, residential, industrial) from the pixel rgb data. It would be possible to automate the generation if you wanted to, but to make cities look believable the algorithm would have to be far more complex using population AI mechanics rather than L-System and noise algorithms.
On the fly generation can be seen in  or I guess the simplest example would be helicopter: 
Something similar to Torchlight would be Infinity: Quest for Earth 
In Infinity, the galaxy and everything within it is generated with a seed value that then creates all the other variables used to generate everything contained in the galaxy (planets, suns etc) The link talks about how this works in greater detail.