Polybump is the same or at least similar to the normal mapping technology being used in other games, ala Doom 3. It's using a per-pixel algorithm to calculate lighting and self-shadowing and the like instead of per-vertex, allowing for a huge difference in percieved form.

It's implemented in a variety of ways, all of which that I know of needing some sort of plugin. The two main ways are creating a high-res mesh and a low res version of that same mesh. Then, using plugins you are able to bake the pixel information from the high res into the low res in the form of a texture known as a normal map.

The other way it's normally done is by simply converting created textures into normal maps by using b/w hieght maps using a photoshop plugin.

Games do convert all polys to triangles when they're in the engine. You do not necessarily have to triangulate the model in the 3D app, although it can be a good idea.