As of yet though most games still rely on HP bars and the notion of critical existence failure when it comes to actual gameplay. Granted, driving games have been dabbling with vehicular carnage for quite a while, a practice that has culminated in BeamNG Drive (and it's soft body physics/collision system). If you really want to see robust damage models though look no further than the simulation genre. Even back in the aforementioned early days of PC gaming there were some impressive attempts at pseudo-realistic damage models. Games like Mechwarrior and Wing Commander had rather brutal systems resulting in all sorts of woes including smashed weapons, shattered armor, crippled engines and fried sensors. Despite all the destructible subsystems though these games still had to depend on a finite supply of hit points in order to determine when the death blow was dealt. Additionally, there was very little in the way of external visual feedback aside from a bit of smoke or a trail of sparks. Granted these games came out a long time ago, but it's still surprising just how few games have tried to improve upon existing mechanics.
Progress has been made but there's still a lot more that can be done. Window screens don't crack or shatter, and aircraft fuselages are visually pretty much indestructible (although they sometimes fall bellow the ground texture giving the impression that the crashing airplane disintegrated on impact). Being able to see bullet impact marks is neat, but despite detailed ballistics tracking the textures don't always correspond to the damage inflicted. Sometimes the transition from undamaged texture to damaged texture is awkward looking as well.
While a bit gory mechanically speaking, I think it would be cool to see "bleeding" coolant, oil, fuel or hydraulic fluid along with white vapors (when appropriate) instead of spewing black smoke exclusively. A common criticism I hear brought up against more detailed damage models is that they require a great deal of computational resources. While I agree that detailed simulations require a lot of calculation, it's exactly the kind of thing modern computers are designed to do (not to mention the ubiquity of multicore CPUs these days).
Graphics are offering diminishing returns, AI is a tough nut to crack and sound in video games is much more of an art than science at this point, but despite all of these potential dead ends there remains a lot of straight forward things that can be done to improve the simulation aspects of games. I keep hearing people online calling for all games to have 1080p and 60fps this console generation, but I'd much rather see more in the way of destructibility whether it be vehicles, buildings or even digital people. Now excuse me while I go watch some old Godzilla flicks.