It would be a waste of resources to have the game running whilst you're not there so I guess it would do the fast-forward trick that you mentioned.
Terraria used the same trick when they introduced the plague biome.
Because it constantly spreads, but it would use too many resources to keep the whole level in memory and constantly update it, the onscreen and surrounding areas are kept up to date and when you scroll around, as other parts are loaded, they are checked against a timer from when they were last saved, and updated accordingly ;)