Buildings, aerials, etc. are placed according to obstructions data etc. See the FlightGear Scenery Object Database for some examples.
The buildings as mapped in OSM can be turned into 3D models for use in FlightGear scenery. This is done with a custom written python script. More information at the FlightGear wiki.
- http://wiki.flightgear.org/Terragear_Corine - Howto about Building Europe scenery with SRTM v4, Corine landclass and OpenStreetMap data
- http://forum.flightgear.org/viewtopic.php?f=5&t=9737 - Forum topic about building from OSM data