In the Source engine we can create distant scenery- such as far off tower blocks or mountains- without actually having to make it to scale, and hence make our level look much larger and more realistic. Plus, the method actually saves on in-game performance over creating everything to scale!
First of all, create a few 'reference' objects that you want to go into your skybox, such as a large building or two (or, just build everything you want to go into your skybox to scale!). It is sometimes a good idea to select all of the buildings and walls that surround your map to use as a reference too, so that anything we build does not "overlap" with what's in the level.
In our example, we shall make a simple grass courtyard (with a small wall around it) as the level itself; the tower will go into our 3D skybox, along with more buildings and hills later on (you can include displacement surfaces at this point, but it's up to you whether you want to build them to 'normal size' or scaled down later). Create a sky_camera at the origin, i.e. at co-ordinates (0,0,0):
Now, select this entity and the reference geometry (hold down CTRL and click on them in the 3D window), and copy and paste it somewhere outside your level. In our case, this means copying the tower block and the small walls; in your case, this would include any objects that you want 'joining up' with the objects in your skybox.
With the copied architecture and entity still selected, click Tools ? Transform, and scale it down- the value is up to you, but for 1/16th scale enter .0625 in the 3 fields. The micro-world we end up with will form the 3D skybox itself:
At this stage, if you have tried to include displacement surfaces in your scaled-down skybox geometry you will notice that although the size of the original brush has changed, the displacement point heights haven't! This can be fixed by opening the displacement surface editor (texture application tool) and setting the 'scale' value to be the same number we used to scale down the architecture.
Now surround your mini-scenery in a skybox- you can just build a cube around it with the tools/toolsskybox texture, and hollow it (note that your normal sized level should still be sealed off with sky, as usual). Delete the reference geometry in your normal world, and then delete the original sky_camera and edit the new one's properties. Set the scale to be the factor that the mini-scenery needs to be scaled up by to be normal sized again- in our case, we made it 1/16th scale, so need to enter a value of 16 (you can use larger or smaller values).
Move your mini-scenery to somewhere outside your map, and enclose it in a skybox- you can just make a cube around it with the tools/toolsskybox texture and hollow it out. Delete the original reference geometry and the original sky_camera entity, and edit the new one, setting the scale to be 16 (or whatever scaling you just used to transform the reference geometry).
NOTE: You can copy and paste the light_environment you're using for your level inside the mini-skybox if you want (in order to make "sunlight") but it isn't necessary.
If you haven't built everything already, you should now make more scenery inside your mini skybox using the reference geometry and the small wall that was copied across as a guide (the latter we should cover in the NODRAW texture so we know where our level boundary is, but not be able to see it in-game):
Note that you can place some entities (such as sprites and lights) inside your mini-box, but others (such as rain or physics entities) will not render. Models will not scale down, so you'll have to use miniature versions of them if any are available.
If you want to experiment with the fog properties of the sky_camera, note that you might want to set the fog end value to be quite high so that you can see relatively near objects. It is advisable to use a slightly foggy sky for realism.
First of all, create a few 'reference' objects that you want to go into your skybox, such as a large building or two (or, just build everything you want to go into your skybox to scale!). It is sometimes a good idea to select all of the buildings and walls that surround your map to use as a reference too, so that anything we build does not "overlap" with what's in the level.
In our example, we shall make a simple grass courtyard (with a small wall around it) as the level itself; the tower will go into our 3D skybox, along with more buildings and hills later on (you can include displacement surfaces at this point, but it's up to you whether you want to build them to 'normal size' or scaled down later). Create a sky_camera at the origin, i.e. at co-ordinates (0,0,0):

Now, select this entity and the reference geometry (hold down CTRL and click on them in the 3D window), and copy and paste it somewhere outside your level. In our case, this means copying the tower block and the small walls; in your case, this would include any objects that you want 'joining up' with the objects in your skybox.
With the copied architecture and entity still selected, click Tools ? Transform, and scale it down- the value is up to you, but for 1/16th scale enter .0625 in the 3 fields. The micro-world we end up with will form the 3D skybox itself:

At this stage, if you have tried to include displacement surfaces in your scaled-down skybox geometry you will notice that although the size of the original brush has changed, the displacement point heights haven't! This can be fixed by opening the displacement surface editor (texture application tool) and setting the 'scale' value to be the same number we used to scale down the architecture.
Now surround your mini-scenery in a skybox- you can just build a cube around it with the tools/toolsskybox texture, and hollow it (note that your normal sized level should still be sealed off with sky, as usual). Delete the reference geometry in your normal world, and then delete the original sky_camera and edit the new one's properties. Set the scale to be the factor that the mini-scenery needs to be scaled up by to be normal sized again- in our case, we made it 1/16th scale, so need to enter a value of 16 (you can use larger or smaller values).
Move your mini-scenery to somewhere outside your map, and enclose it in a skybox- you can just make a cube around it with the tools/toolsskybox texture and hollow it out. Delete the original reference geometry and the original sky_camera entity, and edit the new one, setting the scale to be 16 (or whatever scaling you just used to transform the reference geometry).
NOTE: You can copy and paste the light_environment you're using for your level inside the mini-skybox if you want (in order to make "sunlight") but it isn't necessary.
If you haven't built everything already, you should now make more scenery inside your mini skybox using the reference geometry and the small wall that was copied across as a guide (the latter we should cover in the NODRAW texture so we know where our level boundary is, but not be able to see it in-game):

Note that you can place some entities (such as sprites and lights) inside your mini-box, but others (such as rain or physics entities) will not render. Models will not scale down, so you'll have to use miniature versions of them if any are available.

If you want to experiment with the fog properties of the sky_camera, note that you might want to set the fog end value to be quite high so that you can see relatively near objects. It is advisable to use a slightly foggy sky for realism.