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Player boundary appearance

Very new to the engine, so forgive naivety. I did a search on the forums to find how to make a boundary on a level but my question is capabilities in its appearance. I want the landscape to go on to a backdrop but as the player gets closer the boundary, beyond it would get foggier and foggier. More pixelated, (The alien scene in the movie Contact would be ideal) The idea is that the level is more or less a limited dream environment.
Thanks to all of those experts out there.