Post Processing Effects
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Post processing effects are image filters that are applied as a final step before each rendered frame is drawn to the screen -- much like Photoshop filters. This explanation is lifted word-for-word from David's blog post on the subject. He doesn't go into much detail about it in his blog posts, but here's links to part one and part two any way.
Shaders
Overgrowth uses GLSL shader language, and the users can create custom shaders. Some blog posts explain how some of the shaders work, such as the posts about Object Lightning, Character Rim Lighting and Trees in the Breeze. Overgrowth's character animation is also done through a shader, as David mentioned in a blog comment.
The skeletal animation is done in the vertex shader anyway, so it's actually faster and smoother-looking to just apply the bone matrices to the object-space normal map than it is to recalculate transformed normals and tangents for each vertex.