ToEE is based on the Greyhawk D&D setting. It is also the most literal translation of the rulebook (especially as far as combat mechanics) in any semi-recent computer D&D game. Combat is entirely turn based (as per D&D, initiative is rolled at start of combat and that determines the order), and this allows for a lot of combat mechanics to be implemented. Things like 5-foot-step, weapon reach, etc that don't see the light of day when translated into a real-time combat system (like Baldur's Gate or Neverwinter Nights).
The story basically follows the written Temple of Elemental Evil campaign setting, you should be able to google for it to give yourself an idea. As for character customization, well, it's D&D 3.5
I'm not sure about mods, but the Circle of Eight community patch is basically what you need as far as making sure you get the best gameplay.
Graphics wise it's well done for its age (sample screenshot: http://pcmedia.ign.com/pc/image/greyhawkToEE_071703_012_640w.jpg). Last time I looked at it, it didn't support some of the higher resolutions like 1600 and up, but there may be a community mod/patch for that as well.