Beautiful!
Did I understand correctly that all those buildings are paper models? [...]
Mostly paper, cardboard and at least in some cases balsa wood was added to the interior for better stability.
The man who initially started building the model was called Horst Dühring, after his death the people who helped with creating the model just kept on adding to the diorama.
Amongst other stuff he also built a model of Königsberg- I think there's a youtube video showing some of the details.