We create a small 2d cellular automata. Everything will be completely local. Each cell will have a state and will change states every cycle based on the cells around it. The world will be entirely made up of items (or objects?) Each item inhabits a single cell (or possibly just anything considered a "container".) There can be multiple items in a single cell however. Each item will have a number representing it's size, and a cell can not hold more than a certain amount.

Each item will have a certain list of properties. Each property will either be a list of other properties that it gives that item (for example, the "made-of-wood" property might include "flammable", "buoyant", etc) or some code that is executed each cycle. The code takes the item's current state along with the information about the cell it is in and all the cells around it, and it then it can do several things as output. Move, add, or remove items in any of the adjacent cells or it's own, change the item's internal state, or apply an action to any or all of the nearby items or cells. If an item has an action applied to it, it might have code that specifies exactly what it does in that case. For example, if a tree receives an action called "chop" it converts itself into a log or fallen tree or something like that.

So these conditions are far from perfectly realistic but they allow you to do a ton of stuff with it. Different people can work on the code to different items and properties and then add them into the simulation. You can make agents that move around and interact with the world or machines, tools, animals, etc. If you make it so parts of the agents code can mutate and mix with the code for other agents you can have evolution.