Actually, the real world traffic is indeed real world air traffic. They get it from FlightAware, delay it I think 5 minutes, and send it out to those who have real-world traffic turned on.
My wife was on a flight and I found where her plane was using FlightAware, hopped in FS2020 and spawned in the general location, found her airplane, and flew with her plane to approach and landing. It was really pretty amazing to be able to do that.
From the FlightAware FAQ - “FlightAware compiles, aggregates, and processes data from over 50 government sources (in Europe, the Americas, and Oceania), dozens of airlines, commercial data providers, as well as thousands of receivers in FlightAware’s ADS-B flight tracking network.”
That last bit is the fun part - anyone can build their own ADSB receiver and increase the coverage and accuracy of tracking data. Bonus - you get a local web page you can access to see air traffic around your station in real time, no delays other than propagation and decoding delays, and no blackouts. FlightAware honors requests by aircraft owners to keep tracking data private but with your own station you see everything.
Last, it’s totally legal to set up these receivers in the US but may not be everywhere. Anyone interested should check their own laws. I don’t know that it’s illegal anywhere but I can certainly see that it could be in some countries.