Physics in games has grown rapidly over the last few years. Characters are interacting with their virtual environments in many ways that were impossible years ago. Take, for example, the new Tomb Raider game. In the game, you can kick rocks and, depending on which angle you kick them and the incline, the rock will roll in that direction relative to the force you applied. Also, tools and projectiles respond based on laws contained in the physics engine.
The power of graphics cards is increasing rapidly. A powerful graphics card could be the most expensive component in a machine. At one point, I had very limited graphics cards. Then, 3dfx, the maker of the Voodoo card, released the first 3d accelerator card. This card worked together with the graphics card to provide 3d graphics. Eventually, the accelerator card was integrated into the graphics card. Soon to be released is a physics card. Having a physics card will allow your graphics card to move some processing over to this other card which is dedicated to performing physics computations rapidly. Games designed to take advantage of this card are still underway but it should be a boon for gamers. In a few years, I will most likely see graphics cards that license not only a graphics chip but also a physics chip.
Also, here is some of the terminology you should know. You probably already know that the chip in your computer that does most of the computations is called the CPU (Central Processing Unit). The chip that sits on your graphics card is called the GPU (Graphics Processing Unit). The physics chip is called the PPU (Physics Processing Unit).