Hello there. This wainscoting is called a recessed panel. The rails recess into the wall. The large squares are the drywall. The rails and stiles are routered on both edges, and where the vertical meets the horizontal, a special reverse bit is used that copes into the profile to create a beautiful seam. There are other ways to accomplish this using just unroutered 3/4" x 4" stock where the joints just butt into one another (more prep required to create seamless effect), and a small moulding is placed around the inside of each frame.