>>2922The smallest things might be quarks.
The simulator looks at how different arrangements of quarks behave together as far as an external observer is concerned, and makes larger entities that mimic the external appearance of each of those arrangements.
As an example for that, the simulator can simulate two up quarks and a down quark together, and then make a proton that behaves just like that system but is cheaper to simulate as it is only one object.
Then it can use the same trick again to make atoms that are also single objects, then molecules, eventually macroscopic systems.