Unreality has posted an e-mail with Epic's Jack Porter regarding the recent addition of decals into Unreal Tournament. Here's what he had to say:

Our policy on decals has always been that they weren't worth doing unless they are perfect - they clip and wrap correctly. There's nothing worse than seeing a half-overhanging decal. Anyway, I'd pretty much finished my todo list for what needed to be done for UT so I figured I'd have a go at putting them into the engine. I hadn't done much digging inside the renderer so I thought I'd attempt them to get to know the renderer better - and if they worked in time we'd put them into UT and/or the demo. They took about 5 days to get working perfectly, although they were 90% done after a day or so.

They are attached to BSP surfaces and are clipped to that BSP surface so you never get any overhang. They also wrap around convex and concave (polygonal) curves and on steps.