I heard somewhere that Skyrim is going to be using something that loads everything as you need it. Therefore eliminating loading times between cities and houses. What is the story there? Any truth to that?

I think we picked up there's a possibility of open cities, so this would fit in that theory.

Im talking about a system that loads things individually as needed.... I forget where I heard this...

Well, eliminating loading times = no loading between places like you say or what is it you mean?
I forgot also.

This was implemented in Morrowind. New cells could be loaded upon reaching or in the background when you were in an adyacent one. This can be changed in the ini file.

It's called http://www.umbrasoftware.com/ and supposedly Bethesda helped develop it.

I'm sure it would just make walking around in the world more fluent, and make interior spaces larger, but there's still probably going to be a load time between interior and exterior spaces