One of the larger changes introduced with Hack/Mine is the Area system. Areas consist of many chunks, randomly generated names, and random mob compositions. A dynamic atmosphere system was recently added as well.
Area generation is handled immediately after terrain is generated on a chunk-by-chunk basis. If an adjacent chunk has already been generated and has a "compatible" biome, the adjacent chunk's Area will grow into the current chunk. If no adjacent chunk has a grow-able Area, a new Area is created, with properties specific to the biome it contains.
An Area's name consists of a base name and a modifier (for example, "Hills" as the base and "Bloody" as the modifier results in "Bloody Hills.") The base is entirely dependent on the biome, while modifiers are only loosely dependent on the biome, additionally granting the Area special properties. The loose dependence on biomes is primarily to avoid silly names, like the "Gumdrop Inferno" (though it is unlike Frizzil to disallow such a thing.) Special properties currently include sky, fog, cloud, and overall screen color, as well as day and night lighting. Additionally, possible/required mobs to be spawned will be added shortly, with many more features planned.
Level of Difficulty
The levels of difficulty are created when the map is generated. The spawn will always be level one, areas becoming increasingly higher level the further out you travel out. This is very roughly tied to 100 blocks from spawn per 1 level increase.