Rockstar North is creating a specialized game engine for PS3 that will bring GTA 4 to life to a degree that the PS2 games could only hint at. Specifically, they're going to be using the high data transfer bandwidth of the Cell CPU, RSX GPU, and Blu-ray Disc to use several streams of game info simultaneously. The game's city- unfortunately yet to be even hinted at- will still be free roaming and seamless, but broken down into smaller, more detailed areas at the engine level, into which the game designers are going to be able to pour more textures, more object variety, and tons of details (such as discarded soda cans with their own physics), just for starters. The goal is a city that's less repetitive and where everything - and everyone- looks and acts more like they would in the real world on every level.

Source: PSM

Note: The pic is not from GTA4, as there is no footage available at this moment.