The Making of Dungeon Siege
Over at Rock, Paper, Shotgun Keiron Gillen has a writeup he did back before the original Dungeon Siege released. Something of a post-mortem, he and designer Chris Taylor discuss what makes the mostly traditional hack n' slasher unique. "Technologically speaking, the most distinctive element of Dungeon Siege was how it streamed its levels. Throughout the huge world, there wasn't a single loading pause. 'When you're in a fantasy game...' Chris reaches for a metaphor to explain why this is so important, 'Well, imagine if it's a movie, and if you have to change the film every ten minutes, you wouldn't be able to immerse yourself into the Fantasy. By eliminating loading screens we were able to keep people in the game, and much more immersed in this world. You become one with the game. You could melt into the monitor and the keyboard and the mouse.'"
Loading screen or not, it still had long wait periods where you would travel down a descending elevator or something. They just masked the load screens, didn't really remove them.
If you want the technical details, read The Continuous World of Dungeon Siege (a fascinating read).
To avoid floating-point problems and to allow continuous loading, the world was split up into nodes with specified transformations between them. This resulted in a world that often cannot be mapped, as it would pass through itself. There were also many tricks that were used to fit the huge number of objects in memory. Many things self-destruct, or disappear if out of sight for more that a few minutes.