Much of the landscape in the background is done through CGI, mostly to save time, but it blends so beautifully that it's tough to pick out exactly what is hand drawn and what isn't. The city, known as Republic City, also has breathtakingly rendered buildings and vehicles. There is a couple points in the trailer below that show some nicely done landscapes and objects, such as the statue of Avatar Aang.
From what I've seen of the series so far, and who the characters are, I'm incredibly excited for the rest of this series, and I hope they continue it past their planned two seasons. If you would like to watch the new series, new episodes air on Nickelodeon Saturdays at 11 AM EST.