Indeed this is a good way to put it concisely, because for me it also highlights the meaning of the word atmosphere as inducing a particular "mood" in addition to enhancing the immersion aspects that zloth pointed out.
The technological improvements do help quite a bit, and creating a breathing living world goes a lot of way towards giving a scene/location/world a sense of "completeness" necessary to "transport" the player there (suspend disbelief and immerse). But they are hardly the end all be all of the tools available not only are they enough by themselves imo.
(or else we would not be listing so many older games in our lists
)
Music is a particularly powerful tool and it can dictate as much as supplement a location's (or even an entire game's) mood. It boils down to a unified artistic vision and the talent of the composer and sound engineers to get it right in the end because it has to work closely with level design and even narrative or lore sometimes to work effectively.
(sometimes you even have to know when to turn it off and hand it over completely to ambience: enter Dark souls i.e)
Look how Kai Rosenkantz has matched every bit of location in the very dense two first Gothics with the appropriate music, to create the exact type of mood they wanted you to feel there: "Dont go into the forest on your own…" sing songs the guard on the bridge and when you go there the light dims, an appropriate somber, dangerous, oppressive music starts to play supplemented by the sounds of rustling and the grunts of beasts and orcs… And when night falls or when you cross to the orc lands…
or i.e. in gothic 2 how a simple beach with a couple of huts is transformed to something out of treasure island with a simple nostalgic maritime tune playing over it…
Another favorite and excellent example (that I am sure is very dear to the OP) is Vizima:
A suitably somber and ominous soundtrack supplemented by the ambience of humanity packed too closely together, the beggars the prostitutes and general poverty the overall layout, detail and even the palette used. Also little touches of realism, certainly, like npc schedules and reactivity (first and very well done in the Gothics too) help to really put you in the scene. Vizima was really powerful stuff for me, and the particular "feeling" the game exudes there sort of grabbed me by the throat the first time I experienced it (to get back to Dart's definition).
Not to mention the interlude in which the lore, setting, beauty of the location and excellently matched music make it seem like you stepped in a lyrical amalgam of Arthurian and dark Balkan fairytale. Arguably my favorite part of the game together with Vizima….
Ooops, got a bit carried away here. Apologies but this is a topic very dear to me.
When I think back to my favorites they are more like a "taste" and a collection of feeling to me rather than a set of features or systems at times.