Sky Bowls and Terrains
Another way to create a background environment is to actually create geometry with a texture map of the background, that surrounds the whole scene. You can make this background geometry a cube, to make it simple. You can also create a sphere so that the background image completely surrounds you; or you can make a hemisphere or "sky bowl", with a sky texture on the inside of the dome and some geometry (perhaps just a flat plain) for a terrain.
Make sure you make the background geometry very large; you don't want the user to every be able to get close enough to it to realize that it's not really the sky but is in fact a big dome.
Also, make sure that you have the normals facing inwards on your geometry. In 3D modelling programs, many objects are created with the assumption that you will be viewing them from outside so the normals point outwards. If you leave them like that, your sky dome will be invisible while you're inside it.
(c) Ben Chang