Arcade machines handle dynamic in-game environmental interactions through a combination of specialized hardware and sophisticated programming. The core processing unit, typically a dedicated circuit board with custom chips, continuously monitors player inputs and updates environmental variables in real-time. These systems utilize pre-programmed event triggers and physics calculations to modify game elements like destructible terrain, moving platforms, or changing weather conditions. Memory management is crucial, with RAM storing temporary environmental states while ROM contains permanent interaction logic. The hardware's limited but optimized processing power determines the complexity and responsiveness of environmental changes, creating the immersive experiences that defined classic arcade gaming.