Cryptogenic organizing pneumonia (COP) is characterized by proliferation of granulation tissue within alveolar ducts, alveoli, and small airways. Fibroblasts and myofibroblasts form intra-alveolar buds (Masson bodies) that fill the airspaces without destroying the underlying lung architecture. Unlike usual interstitial pneumonia, the process is potentially reversible because the alveolar walls remain intact. The inflammatory infiltrate is predominantly lymphocytic, with type II pneumocyte hyperplasia contributing to the ground-glass appearance on imaging.