For example in forza, the game plays engine sounds based on how much we press the button. Are there different sequences of clips ? If yes how do they blend so well ? Or are they synthesized dynamically ?
There are so many parts to it as well - when the gear shifts, when you suddenly slow down at high speed, when you suddenly accelerate from stop. They all seem very realistic.
It's certainly simpler than Forza et al, but there's an open-source racing simulator, called Speed Dreams: https://www.speed-dreams.net/
If you watch the "Latest Release" video, there's some engine sounds in that.
They also do that for gear changes, tyre sounds, collisions and backfires.
From what I know about audio, I would expect AAA games to still use the same approach of recordings+modulations.
While it is possible to fully synthesize an engine sound, it doesn't help you much with making it sound right in all different situations.