A physics engine is general used to describe a software program that is used to simulate physical phenomena. One of the first uses of a physics engine was for simulating where artillery shells would land based on their weight, force behind the firing of the shells, and angle of the firing. Since then, it has also been used to help in the design of aircraft and watercraft, as well as vehicles.
A physics engine is also used in computer video games for simulating various actions and reactions in the game. Unlike real-world physics engines, those used in video games generally aim to give a particular feel rather than intense realism. In other words, video games aren't concerned with real-life simulations as much as they are about being perceptually correct. In first person shooter games, this can lead to cases where a player is shot in the leg and dies, instead of just being injured. A physics engine is designed to simulate the perception of shooting and killing a target, not so much in where the target is hit or if it was a mortal wound or a flesh wound.