Field observations and satellite imagery have demonstrated the ubiquitous nature of internal waves, and substantial evidence indicates that they play a significant role in nutrient transport, energy distribution and mixing throughout the world's oceans. As a result, internal waves have attracted a great deal of interest in the past few decades. However, because of the complex nature of internal waves, particularly in regard to their nonlinear and nonhydrostatic characteristics, basic properties of internal waves still lack satisfactory explanation, including how they are generated, how they propagate, and how they dissipate their energy in the open ocean and on continental margins. To obtain a better understanding of internal waves, we use SUNTANS, a three-dimensional, unstructured-grid, nonhydrostatic Navier-Stokes code, to simulate internal waves in the South China Sea (SCS), where extremely large-amplitude internal waves have been observed. To capture the nonlinear features of internal waves, a total variation diminishing method has been developed to accurately solve the three-dimensional scalar transport equation with unstructured grids in SUNTANS. Taking advantage of this scheme, we employ both two- and three-dimensional numerical simulations with idealized and real bathymetry and perform detailed analyses of internal wave energetics and dynamics to understand how they are generated in the SCS and how they evolve into trains of weakly nonlinear solitary-like waves. The simulation results indicate that nonlinear internal waves in the SCS are generated by strong barotropic flow over complex topography at a ridge on the eastern edge of the Luzon Strait, which connects the eastern boundary of the SCS to the Pacific Ocean. Idealized two-dimensional simulations show that the internal Froude number over the topography, or the ratio of the barotropic currents to the first-mode internal wave speed, can be the most important parameter governing the generation with a strong effect both on the amplitude of the generated waves and the phase in the barotropic tide at which internal waves are generated. For low-Froude number generation, linear first-mode waves are always generated at the end of the ebb tide, and increasing the Froude number causes waves to be generated earlier given the flow is subcritical. However, because the internal Froude number in the SCS is small, the three-dimensional simulations with real topography and stratification indicate that the excursion parameter, which is the ratio of the tidal excursion to the topographic scale, is the most important parameter governing the generation mechanism. With small tidal excursion parameters in the SCS, the well-known A and B waves are both likely generated by the internal tide mechanism. The A waves evolve from the formation of diurnal internal tidal beams at critical topography along the eastern ridge of the two ridge-system in the southern portion of the Luzon Strait. The B waves, on the other hand, are generated due to the formation of internal tides resulting from semidiurnal barotropic currents along the eastern ridge in the northern portion of the Luzon Strait. An analysis of the energetics indicates that half of the baroclinic or internal tidal energy dissipates locally over the ridge within the Strait, while the other half radiates away from the generation site and into the SCS basin. As the waves propagate across the SCS basin, they develop into trains of rank-ordered solitary-like internal waves under the effects of nonlinear steepening and nonhydrostatic dispersion. Because it employs the nonhydrostatic pressure, the SUNTANS model accurately captures these effects as well as the complex processes of wave diffraction, refraction, and wave-wave interaction on the continental shelf at the western edge of the SCS.