When I first loaded up Skyrim one of the first things I noticed is that the shadows are horrendous. I quickly tried to find a solution and there is (the one where you set the shadows to medium and then adjust some ini settings) but doing that makes the shadows have a much shorter fade out distance. It's really bugging me because I hate the pixelated shadows, but I don't want to have shadows only appear when they're close. Is there any way to do this?

http://www.geforce.com/News/articles/optimize-your-skyrim-experience

Yeah I'm aware of that article and I've adjusted numerous settings mentioned in it, but I can't seem to get crisp shadows and shadows at long distances using the tweaks they mentioned.

I think it's more an engine limitation. The engine is stuck back in 2006.

I believe its the shadow resolution settings you need to increase.

The idea is the shadows have a total resolution, and the distance settings stretches that shadow. Increase the resolution, and they won't be stretched as horribly.

Add this line to your SkyrimPrefs.ini, and set the resolution to whatever you want (Mine is 6144, obviously):
iShadowMapResolution=6144

This will increase you shadow resolution, but for me this also increased input lag, and at 8192 it was pretty much unplayable.

EDIT: I noticed now that you had already seen this in the nVidia tweak guide. But it should still do wonders. It's not perfect, and you will the still have a lot of jaggies on your shadows, but it should help.

My shadow resolution is at 4096 and I believe that's the max so that's not going to help.

I have shadow distance 8000 and I "must" have it because without it trees look bad (tree shadows make a huge difference).
I also have shadow resolution 4096. This results in blocky shadows.

There's really nothing we can do about it as far as I know. Perhaps a mod will change it one day. But I think we're pretty stuck between choosing high range + less quality versus low range + high quality.
In general, the shadows in Skyrim are just a joke for 2011.

Also keep in mind that having ultra shadows eat performance big time.

Increasing the blur of the shadows reduces blockiness, even if you have a high shadow range, but it also makes the tree shadows really blurry and smudged up. I personally care too much about sharp tree shadows though that I dont even wanna have a blur setting on the shadows.

Bethesda won't do DX11 shadows so I guess we are stuck with 2006 shadow quality. I don't think they will do what Rockstar did with GTA IV and redo the shadows in a patch.

Yeah, it seems that it's an either or situation right now and it kinda svcks. I bought this game for pc specifically for eye candy and mods and the shadow issue, while not game breaking, is really annoying.

The happiest compromise that you'll be able to find is a combination of many different tweaks. First of all, make sure you have the shadow quality (iShadowMapResolution) as high as your PC can handle it. I have it at 4096, which is ultra. You can set it higher if you want. After that raise the value of iBlurDeferredShadowMask (the default is 3, I keep it at about 5). What this does is as you increase the value, the shadows become more blurred and less defined (inversely, as you lower it, they become crisper). By blurring it a bit, the poor quality becomes less evident. After that, set the shadow fade distance to whatever setting you want (I keep it about 3000).

The result probably won't quite live up to your expectations, however it'll still allow you to get some reasonable distance on the shadows and make them look pretty nice.

The best option, if you have a rather new card by Nvidia, is the ambient-occlusion shadows option in the advanced card settings.

If that is an ability, and you can turn it on... Then you should turn off "Tree and grass and ground shadows", if those were turned-on manually. Then reduce exterior shadows drawing to about 1000 (15-feet). That is the strong sun shadow only, not all shadows. Along with setting these shadow settings... Ambient occlusion will self-shadow surfaces that join-together at steep angles with a darker shade. Thus, the multi-layer trees and grasses will naturally have a darker core near the trunk, and brighter colors at the exposed ends, which are not near the trunk. Same with grass and rocks that intersect the ground. The denser the objects and the more layers occluding/blocking ambient light, the darker the shadows. This also includes under roof-porches, intersections of door and window trim, most things you see when looking up which should be darker than the ground below...

In the Skyrim.INI
iShadowMapResolutionPrimary=2048

In SkyrimPrefs.INI
fShadowDistance=1000.0000
iBlurDeferredShadowMask=3
iShadowMapResolutionSecondary=1024
iShadowMapResolutionPrimary=2048

NOTE: Secondary must be half the Primary, or the two shadows will not look correct where they blend. Shadows have two separate maps for each view-distance, from the origin. If both values are the same, your FAR-SHADOW (SECONDARY), will seem to have twice the resolution as the NEAR-SHADOW (PRIMARY). EG, the half-way point where the shadow begins to fade, will be crisp while the shadows under your feet and on players, are blocky.

If you MUST have HD shadows, set at a far range... On every damn object at once... Way off in the distance... (Because you don't have ambient-occlusion shadows.)

Try these values...

In the Skyrim.INI
iShadowMapResolutionPrimary=2048

In SkyrimPrefs.INI
fShadowDistance=7000.0000
iBlurDeferredShadowMask=3
iShadowMapResolutionSecondary=1024
iShadowMapResolutionPrimary=4096

The iBlurDeferredShadowMask=3 will soften shadows, but each blur-level is just more speed-loss due to use of older 2.0 shaders still being used, and custom software-shadows which the game seems to use. Larger values also make many shadows seem to float under and away from where items intersect the ground, if the sun is at a shallow angle. EG, tree-trunks will have a noticeable gap before the shadow is drawn, with a blur of 8 or 16. Thus, the tree will seem as if it is floating, with light shining under the trunk that seems to be suspended in the air.

The problem is... Shadows are not a set clarity, or blur, in reality... The closer the shadows is to the ground/intersection, the sharper it is. The further-away the shadow is from the object, the softer and brighter it is. EG, a tree-trunk casts a dark and sharp shadow where it intersects the ground. However, the tree-top would cast almost no apparent shadow, and it would be real blurry, not sharp. (That is what makes most 3D rendering programs produce obvious fake-looking renderings. They use ray-tracing which is a hard-shadow, and/or full-blur shadow-masks, which are both unnatural and fake-looking.)

There is no middle ground. You get to pick, QUALITY-SHADOW-DETAIL or DISTANCE-SHADOW-VOLUME, not both. One reduces the other, and both being half-way just makes them both ugly.

The short answer to your question is: no. The Creation Engine (regardless of its parentage) can not, in its current iteration, render near and far shadows at separate levels of detail. This is intentional to preserve an acceptable performance level. It is also indicative of a focus on console development, where configuring different levels of detail based on distance of shadows and more powerful hardware being present in the system that what would be considered the norm is not an option. We must wait to see if an alternative becomes available from Bethesda or from a third party after the Creation Kit becomes available.

Ambient Occlusion isn't really an answer to this particular problem. It does add some depth to environmental elements, but at a cost - both visually and performance-wise. If you're wondering why Skyrim doesn't have any ambient occlusion built-in, just take a look at snow drifts with it enabled. Either the engine or the driver doesn't know how to apply ambient occlusion to snow - or it doesn't know that it shouldn't - and the result is less than aesthetically pleasing. Given the frequency with which snow-covered landscapes appear in Skyrim, it isn't hard to see why it wasn't included.

Ambient Occlusion has nothing to do with this and Bethesda didn't implement it because their engine is so outdated and they wouldn't add such features for the PC anyway. The limitations are there because the game was made for consoles. Screen Space AO would be a lot better anyway and the NVIDIA AO is not a idea solution at all.

Nvidia's AO is a form of screen space AO, as are most solutions that actually run in real time.

It's just pretty badly limited by its lack of integration into the game. AO is supposed to reduce ambient light, but the way Nvidia's driver does it, it can't do much except darken the whole image, sometimes even shading on top of fog effects and such. Looks wrong enough on any surface where ambient light isn't the strongest source of lighting, and then it occasionally ends up shading things like brightly glowing light fixtures, too.

I don't think it would be very hard to implement AO in an engine that's already doing deferred shadow mapping (both can use data from the same depth pass), but if the flaky mouse support in menus is any indication, the PC version isn't getting a lot of developer attention.

And, many of the textures already have AO-ish shading burned in. Might look a bit wrong if they had both that and good SSAO, especially in places like the Blue Palace where half the scene's only lit by ambient light.

Well maybe they will bring Elder Scrolls out of 2006 when the new consoles come out, until then we are stuck with no new tech and 2006 called.