Did they have any more details on this than the video on the KS page? I want to see some of their work in progress, if that's possible.
They didn't talk much about technical details yet. But they claim that the in-engine footage is running on current hardware, and it's not faking it (performance wise):
The in-engine video is most definitely real-time and won't melt your computer - I've seen it running fine "off the rails" on our internal systems.
The idea that we will sacrifice gameplay for graphics (or will want to vice-versa) is a little misplaced. High-quality art and art direction aren't mutually exclusive with good design or gameplay. Real-world game development doesn't work that way - though obviously there's a trade-off between spending time on polishing up existing content, vs. spending time making brand-new content.
I wouldn't worry much about that at this point anyway. Early prototypes don't need to stay the same. They can revamp their approach several times before the release. Publishers usually demand developers to produce approximate "how it will look" prototype before funding anything. But it's not so good for developers since it doesn't allow flexibility and redesign if necessary. Underworld Ascendant developers spoke about it. So I see early prototypes as just an example of their artistic vision, not as how the final game will look.
