Thanks for the heads up on Tremor Steve, I will have a look into that. At a first glance, I do not think it is a "physical modeller" as such, and uses virtual analog software to create the sounds (although there may be some kind of physical modelling there... I'm not sure).
Here's a link to a SOS article on physical modelling. It's quite a lengthy article, and I wouldn't blame you for giving up on it, but it tries to explain the principles.
http://www.soundonsound.com/sos/1997_articles/jun97/physicalmodel.html Basically, as I understand it, physical modelling software uses mathematics in order to design instruments, based on how material things react when caused to make a sound, by striking, bowing, plucking etc. And you can even create instruments that just do not exist in this world.
Imagine building a massive drum, of many metres in diameter and length, and skinned with a massive sheet of some strange elastic material. Physical modelling would allow you to recreate that, I think.