Physics occurs on some blocks such as Sand, Gravel and Active TNT. It Simply means the block will fall until there is another block underneath it. There can be exceptions to physics, most notably the natural occurrence of sand in underground caverns that connect to sand plugs or beaches on the surface, which act as non-physics blocks until an adjacent block is placed or removed.
Many innovations have used physics blocks to function, such as Airlocks and Cannons. These blocks can be very useful for Traps as any Mob or Player caught underneath a falling physics block will continuously take damage until they escape (with the exception of active TNT, which appears to fall harmlessly through a mob or player), which can usually be achieved by jumping or moving around.