has been done before by quake wars.
was good but hardly spectacular.
The textures are no where near that size other wise your page file, ram and gfx ram would need a massive boost
quakewars used megatextures only on the terrain and a very scaled back version at that.
idtech5 uses a much more advanced version and it goes beyond just the world textures (every part of the world geometry, walls, windows, etc. can be done in idtech5 rather than just terrain as in idtech4) the entire world structural geometry is also created using a similiar system.
I'm going to overly simplify and some of these details might be a little off as its an ongoing development but...
On the texture side it works by building a massive texture lump at design time - which in the case of a game like rage is probably around 300gig - which for runtime on a specific target platform is crunched down using compression to a set of tiles with several levels of detail.
i.e. on the PC you might have:
Set 1: 10gig
Set 2: 600MB
Set 3: 60MB
each with say 6000 tiles, as you move around the level the tiles for the nearest sections are streamed in and out from disc, further away sections are streamed from the lower detail tile sets to save memory and if your moving fast through the world it skips the highest detail level so that (A) performance doesn't nose dive (B) you won't notice the difference due to the movement speed.
If your exporting the same world for say the xbox360 you might only have 2 sets the first say 700MB and the second 40MB, obviously quality won't be as good but you don't need to redesign your entire level to get playable performance on another platform.
Geometry now uses a similiar system its designed at very high quality levels and then uses an advanced LOD system to reduce the detail as needed depending on the target platform, viewing distance, etc.
I suggest taking a close look at some of the recent development details - the world environment detail is far beyond most engines now - tho I agree the character models look a bit naff even tho they have good detail.