A PPU (Physics Processing Unit) is a dedicated processor designed to handle the calculations of physics, mainly in video games. Examples of calculations a PPU might do include rigid body dynamics, soft body dynamics, collision detection, fluid dynamics, hair and clothing simulation, finite element analysis, and fracturing of objects. The idea is that specialized processors can do quickly what would take longer for a CPU, analogous to the way a GPU performs optimized graphics operations.
PhysX
The first processor to call itself a PPU was called the PhysX chip, introduced by a fabless semiconductor company called Ageia. The PhysX PPU is programmed with Ageia's Novodex SDK.
On July 20 2005, Sony signed an agreement with Ageia to use the PhysX SDK in the upcoming Playstation 3.[1]
Slated for release sometime in 2005, the PhysX will be manufactured by companies like ASUS, akin to the way graphics cards are manufactured.