There is a particular FAA required test to qualify simulators, to assess the accuracy of the visual scene at decision height during an ILS approach. Aircraft trimmed in landing configuration at 30m wheel height above ground, on glide slope, with RVR setting of 300 or 350m: "threshold lights computed to be visible must be visible, and the correct number of approach lights must be visible".
The way I understand it, there is 3d polygon model of the virtual world, including the surface/runway, with lights (not the only light sources), and there is simulated fog (or sand or smoke or anything), the fog can be patchy or non-homogenous (with a vertical variation in horizontal visibility). The fog can be simulated in various complicated ways in modern simulators (for example like
this ) as a particle mass which is "in between" your eyes and the threshold/approach lights (and patches of fog can even look like fog, not like a sperm whale or klingon starship as in some older simulators). The fog is a participating medium in the visuals, it affects the scene. The visual system/graphics engine knows where you are in this virtual 3D world, and it calculates what parts of the runway "behind" the fog are visible from your point of view in the cockpit, based on the simulated physical/optical properties of the fog obstructing your view, and light sources, and renders this to be displayed.