How to create Matrix-like simulation?

Movies like The Matrix and video games like The Evil Within have popularized the idea of a simulated reality. I'm talking about a human connected to a computer and able to experience similar things like a person would be able to experience on Earth. The simulation doesn't necessarily have to simulate atoms and fundamental particles, rather like we see on video games structures of landscape and "reality" inside it (which of course would be limited to the size of computing power).

Also, I'm not talking about the entire Universe rather the interior of a city. What server-side physical infrastructure would be needed to achieve this?

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How to create Matrix-like simulation?

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