I heard somewhere that all they can do is eye candy that has no effect on gameplay. Is this true or can they also do interactive physics between objects in the game world?
What I think he was getting at was whether or not the only physics calcuations done was for a visual effect (like the first gen PPU's do) or whether or not they do actual environment physics (air, water, gas interactions)....
An object blows up, you have 2000 parts flying...
Or an object blows up, you have 200 parts flying, realistic smoke flowing the way of the wind, and the shrapnel smoking as well...
AGEIA's PPU can do nontrivial physics and have them interact with the game, players, AI and such just like physics done on the CPU now. Only Havok FX and even ATi's take on GPU physics only work with trivial physics that don't affect the outcome of the game: particles, hair, cloth, etc.