Along with mentioning a strange rash, a sure way to kill a conversation is to bring up the topic of Computational Fluid Dynamics (CFD). But for those who wish to create fantastic-looking clouds, explosions, smoke, and other game effects, nothing could be more exciting!
CFD is the section of fluid mechanics that finds numerical solutions to the equations describing the behavior of fluids, both liquid and gaseous, and their interaction with various forces. Until recent hardware advances, even approximating a solution was too computationally intense for real-time applications.
However, the last year or two has shown a small but increasing amount of research and articles, as well as the release of some commercial products that deal with simulating fluids, not only in real time but in a video game environment.