I was really curious on the particular art style the Valheim's devs went for, so i tried to replicate it and make a scene for it! Had a real fun time on this one. Most of the texture here are made by downscaling to something between 50x50 and 100x100, depending on the size of the object, and then upscaling to a normal txt size (512 or 1024), keeping the hard edges of the pixels. This method specifically on the normal map is what gives really strange results that match the art style. That said tho, i think the devs are using some sort of shader in the engine to achieve the style!