Lighting in a game is a complex thing. It used to be that the textures (or geometry, before the days of textures) contained the lighting information "pre-baked". Sometimes this was fixed, sometimes special tricks were exploited to achieve some pretty cool effects. It was all down to the artist, directly.
Anyway, fast-forward to the current era and lighting is pretty much the same:
You light the entire geometry with a certain level of "ambient" light (since if only direct lighting were used, the amount of geometry in total shadow would just look ridiculous) and then layer the direct (and other) light sources on top of that. The artist is responsible for tuning these relative components.
Ambient occlusion techniques seek to add extra shade where the geometry would be receiving less than the "ambient" light level - this is usually pre-baked, but there are several ways to do it on-the-fly, with varying performance and quality. It seems this is what is happening with the cars in GT5, or rather, what is
not happening. It used to be (up to GT5

, even) that blob-shadows were used in conjunction with the car-shaped ones to simulate this effect, but I imagine projected light sources (i.e. headlights) might make this look a bit odd.
There are other lighting regimes which handle ambient light levels more intelligently and can also allow for more realistic looking lighting for the scenery and objects within it.
It seems that for photomode, PD are using [WIKIPEDIA]image-based lighting[/WIKIPEDIA], where the geometry (particularly the car) is actually lit, per pixel, by it's surroundings, rather than a collection of direct sources. Whether this is done for races is another matter.
Anyway,
here's a nice summary of a typical approach to shadowing in games. The shadows here are "baked" into maps applied to the geometry, but it's possible to run this sort of thing in realtime (CryEngine 3, anyone?)
Actually, that blog has a lot of interesting articles; some partially relevant examples:
Image based lighting.
"Composite" lighting breakdown.
How to cast shadows onto scenery (properly...)
Crucially, I can't find anything on self-shadowing...
It's important to remember that Overgrowth is a completely different game to GT5, so the compromises cited in those articles may be total fallacy for a racing game like GT5.
