The QC command
$subd is used to mark a model to be tessellated in run-time. This can be used to make models appear smoother than they actually are.
It also is needed to make $displacementmap work.
mat_tessellationlevel <1-16>, with higher values rendering more polygons.
$subdonly works with quads and n-gons with more than 3 edges. This effectively makes the SMD format unusable, meaning you have to use the DMX format, as SMD only supports triangles. The SMD format can still be used for animations, though.
Note that $subd must be placed before your model line.
$modelname "example/subdivision.mdl" $cdmaterials "example/subdivision" $subd $body test "subdivison.dmx" $sequence idle "subdivision_idle.smd"