It's kind of like a force field/hard-light treadmill. If its occupants get too close to the walls, they are shifted away. Since the Danger Room can modify its gravity in three dimensions, the occupants won't notice any inertial change. Full-resolution holo-objects are composed of molecule-sized magnetic bubbles which can be individually manipulated through three dimensions by the computer...blah, blah, blah...basically, like the Matrix says: If real is what you can feel, smell, taste and see, then 'real' is simply electrical signals interpreted by your brain. The computer makes it real through its micro-magnetic-bubbles of whatever-the-fuck.

[Put together by Fuzzy. No, I'm not that cool, I got all that from assorted Matrix and Holodeck technology thingies on the web]

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EDIT: The "smell" part works for non-ferals only.