From the description it appears they use AI (which they say is a neural network representation of signed distance fields) for colliders only?
The performance seems good but given it is low resolution it is hard to tell if it is better than the alternatives.
I wish there was a Siggraph paper on this technique.
I think the main issue is structure and containment. AAA games don't avoid destruction, newtonian physics and fluid dynamics because it's computationally hard but because it probably doesn't benefit the more standard gameplay mechanics enough for all the issues it causes.
Just as an example, Red Faction came out in 2001 with full terrain destruction, but they had to preempt all the shortcuts people would take else you can just tunnel to the end of the level. Every time a GTA comes out the internet rumours say it'll have fully destructable buildings, but that will never happen as you would end up blowing up all the mission locations or breaking NPC pathfinding etc.