The simulation is totally immersive in that you could essentially explore all of New York without leaving the room. The squares around you factor in distances between you and your teammates and the holographic display will adjust accordingly. For an example you could be above the Empire State Building while tour teammates are in Times Square and you won't be able to see or hear them even though in reality you're only a few feet away from them. 

Anything that happens in the Danger Room feels real up to lethal injuries which simply end the simulation instead of inflicting trauma on your body.