A virtual production stage is a film studio in which the actors perform in front of huge LED screens that show a computer-made background. A game engine, the same kind of software that draws the graphics in video games, draws the background live. When the camera moves, the background changes to match, as a real view would. Such a stage is also called an LED volume, and the method is called virtual production.
How does the background know where the camera is? Sensors on the camera, or cameras on the ceiling, track the film camera's exact position and angle many times a second. The game engine receives this position and draws the part of the background that the camera can see, from the camera's point of view. So near objects in the background shift more than far ones as the camera moves, just as they do in real life. The picture on the screens is filmed directly by the camera, together with the actors.
Imagine a scene set on a high mountain pass in Ladakh, shot on a stage in Hyderabad. Two actors sit in a jeep in the middle of the stage. The LED wall around them is 20 metres wide and 6 metres high, with more screens above. Months before the shoot, artists build a 3D model of the pass, with its snow, its prayer flags and the evening light. On the shooting day, the camera circles the jeep. The engine redraws the mountains behind the actors 24 times a second. The orange light of the sunset on the screens also falls on the actors' faces and on the jeep's windscreen. The director sees the finished-looking shot on the monitor at once. The crew shoots the scene in two days, instead of taking 80 people and their equipment to Ladakh.
Why not use a green screen? With a green screen, the actors perform in front of a plain green wall, and the background is added months later. The actors cannot see where they are, and the green colour reflects onto their skin and clothes, which artists must remove later. On an LED stage, the light and the reflections are real, and the actors can see the world they are in.
The method has costs too. The background must be ready and approved before the shoot, so a large part of the effects work moves to before production. The stage itself is expensive to rent. Some shots still go to a VFX studio afterwards, to fix the seams of the screens or to add rain or crowds. The same game engines that run these stages are used to build video games, so virtual production uses the same tools as the video game industry. The finished shots then go through the rest of film production.