Sandbox mode would place you in a location with the size and features of your choosing. The location wouldn't have anything to do with a world, it would just be generated when you start sandbox mode and destroyed when you leave.
With the menus in sandbox mode you would be able to place any creature/item/building/etc. defined in the raws, at any point on the map. You would be able to modify things like whether a creature is hostile or friendly, what skills it has, and whatnot.
I think this sort of mode would help greatly with modding, allowing the modder to test creatures/items/buildings/etc. without needing to generate an entire world, and in a controlled environment.
Once you're done insta-carving tunnels and rooms, filling rooms with treasure, adding a series of complicated puzzles, setting up traps and finally placing nasty giant cave spiders everywhere, you've got a goldmine for adventurer exploration!
If you build loads of these custom dungeons and share the world their in, followed by a set of instructions on how to find the first dungeon, after which is defeated, a second set of instructions is given and so on. We could have contests to see who can doom the most adventurers, and whos adventurer can beat the most dungeons without dying!
Only problem is the evil people who build dungeons that are impossible to complete...
Frankly, I've thought of loading up with utilities, and starting a fort with just this sort of thing in mind.
Or just make a giant platform, put hundreds of peasants and nobles on it, and watch them fall 10 levels, and see who survives.
This would also be incredibly useful to test theories, physics, etc to see what works and what doesn't.