Surely you don't need that many units per square unit, you could make each 'atom' like half or quarter of a mm in game, that'd seriously reduce storage and things, reet?

The "atoms" are actually 1/4mm, which gives 64 per cubic mm (4 per side: 4*4*4=64). I would actually argue it could just be 1 per mm and give no appreciable difference in quality.

Even make each atom 1/2 a millimetre would reduce the memory, reet?

Halving the linear detail would reduce data to 1/8th, yes.

Think you would need much more, since you would have to be able to deform it if you shot a gun at the ground for example. And alot of games have more destruction availble etc.