I'm not exactly sure but I have some ideas. Ignoring the smooth parts, the shape of their terrain looks similar to Marching Cubes applied to binary values (i.e. without density values). You can see similar terrain in one of ker's images:

However, it's not exactly the same so it's probably some variation of this algorithm. To do this in PolyVox I think you would want to write a custom surface extractor.
As for the smoothing they may simply be taking the mesh and splitting it into those triangles which face roughly up and those that don't. Then they could apply a mesh smoothing filter to the up-facing part (whilst locking the position of the edge vertices to avoid tears). In fact they probably don't even need split the mesh - just constrain the ability of vertices to move based on where their normals point. At any rate you would want some custom smoothing code.
But there might be other approches (smoothing the volume data rather than the mesh?) so it would need some experimentation...