It's not perfect but it's really good. They have a free tech demo, but I recommend buying the full thing (its about £10). They update very often.
But yeah, the damage is amazing. The cars are all modelled using a complicated Beam and Node system along with soft body simulation. But it's not just visual. You can pop tyres, bend wheels, break suspension, snap drive shafts and so on, and they plan on adding more and more damage realism over time.
But the driving model is a focus of theirs too. They have all deformable tyres and that stuff to simulate grip properly. They claim their spring and damper physics is the best in the industry. I tend to agree. Overall handling wise it's still a bit quirky and not quite right, but it has already got a lot better with one update than it was a t release, yet still better than a lot of games.
I just showed the test map here. They've got some really nicely modeled islands with dirt and offroading tracks too. Not to mention loads of community maps. You can Alt-Enter and press F11 at any time to go into the editor.
Yeah, it's decent. Not the best car physics but it's getting better all the time. Wish i could use my wheel with it, but it won't fit on the desk i'm having to use at the moment.