If you look at the cloud area above the 'created' mountain, then look at the slope to the left of the mountain (inside the panorama) and the cloud area above that, you can see that it's very similar.

My guess as to how this works is that it looks some distance in from the selection edge, and then repeats that outward (or inward), but matches up the edges to the selection. You can see it in the deleted road where the 'desert' on the bottom right of the new area matches the brush to the left of it, but the rest matches the brush to the top and right of it.

It's like creating a seamless tiling background, except instead of doing it in a square, it does it in an arbitrary selection path.