Can this be used in a VR setting? Is this the first step toward building a viable holodeck?
A "viable" Holodeck is a technology sufficiently advanced compared to the present day so as to be indistinguishable from magic. Ergo, no Holodeck anytime soon. No Arnold Judas Rimmer hard light holograms either because WTF is a hard light hologram in the first place?
No. Don't be fooled by the marketing. No one knows how to produce realistic-looking 100% CGI. Raytracing is even worse in some respects than traditional raster based graphics, and better in other respects.
Here's a heuristic that has never failed: If someone claims to have found a way to make photorealistic graphics, ignore them, because they're lying.
(This is true until it isn't, but at no point in history has it ever been true, yet. But that doesn't stop thousands of people and companies from claiming it.)
There's no way in hell you'd be able to do it real-time with models of sufficient detail though. So I presume you mean "... in realtime."
It is true however that the problem is not fully solved in general. There are still things that are not handled very well in still renders and animation (particularly human animation) breaks down in more situations.