AGIEA developed and released a Physics Processing Card a year or so ago that would handle extra physics mechanics used to make objects in video games more life-like and not slow the game to a grinding hault. It's like the Havok Engine, which is used in some games now, except it would be processed entirely by a dedicated PPU - and we all know how well specially dedicated chips are at their specific task (see: GPU).
The problem was no games at the time supported the AGEIA hardware, and if no games supported the hardware than why would people be willing to spend $150 on the card? This Catch 22 resulted in low sales but the basic idea of having a seperate PPU, or at least enhancing the software and games to allow for more physics processing, was interesting to most gamers.
Now a year later nVidia comes along and buys the company, which it was never in competition with, for reasons we can only assume is to push forward AGEIA's technology... which in my mind is a good thing.
Hope that helps.
*Edit*
These game play videos probably explain what it does better than I can with words:
http://www.ageia.com/physx/videos.html