To expand on what Teir said:
On a typical car game that does damaging a normal/undamaged fender is "replaced" by one that takes damage. For example, you drive with one computer fender, hit a wall/car and the normal fender is then replaced with a predetermined damaged fender.
Numbers used below are for eplanation purposes only!
Using the above method the cars fenders could have VERY few polygons. Maybe 20 or so. So the entire model of the car has a low to mid poly count, say 3,000.
Now, what this game does is soooo much more awesome, and that is why the poly count is not as noticable as some here have said.
The damage is all real.
The "normal" body parts of the cars are composed of LOTS of poly\'s. Say a typical fender would be 20 poly\'s, this game would have 120. All of the surface area of the fenders are broken up into tiny polygons, that way when you crash the fenders will crumble and bend at the seams of the tiny polygons... COOL HUH!!
Other racers would just replace the fender with a premade damaged one. See:)