Terence Byrne created a level in Unity where the player awakens from a plane crash on an unidentified island. He built the terrain and environment, adding textures, lighting, structures like villages and ruins, props like campsites and wagons, and characters like goblins. Throughout the process, he encountered issues like lost work but was able to recover. The final level included multiple locations connected by a bridge between islands to explore, with the goal of simulating a playable game environment.