If you run up to a wall and slam right into it - as expected - or if you nail a bullet into some odd terrorist's head and he collapses onto the ground like a rag doll - again, as expected - that's usually the physics engine doing the work. The physics engine handles the interaction of game objects in real time. And one of the leading examples of that is the Havok middleware physics engine, used in many familiar FPS titles like Half-Life 2 and even the Matrix trilogy.
Havok - the company that makes the software - showed off its latest version of Havok (the software) running off PC and PS3 setups at the 2006 CEDEC Developer's Conference. We have three shots of their visual presentation taken from Famitsu.com, showing off Havok Spectrum 4.0's particle and collision physics being calculated and rendered in real time.