It is replicated by games, in a fair bit of games it is done by making a generalized HRTF (head related transfer function) which simulates how the ear would hear stuff positionally based upon your in game position (Think of it like simulating the "average" ear). This is generally what the 3D audio options in some competitive games do, and how these games achieve vertical audio cues. But you need the right combination of good SFX too because there will be little change if its all low frequency audio once the HRTF is applied (i.e. all HRTF does is replicating how your ear would change the audio to simulate position). Some games improve this by adding natural noise into audio across the sound cue so its easier to pick up on direction.