From BlenderWiki

Introduction

This chapter regroups various Blender advanced effects, often used to simulate real physical phenomena.

The Blender particle systems can be used to simulate many things: hair, grass, smoke, flocks, …

Another great tool is the soft body simulator, useful for everything that tends to bend, deform, in reaction to forces like gravity or wind, or when colliding with other objects… It can be used for skin, rubber, and even clothes, even though there is a special tool for the latter case.

Blender also ships with some more general physics tools, like force fields, which might impact on particles, soft and rigid bodies, etc.

And you have a way to simulate very realistic fluids, with flows, obstacles, and so on!

Have fun, and Happy Blending!