Physics are automatically disabled if they make the game run too slow. You can also toggle them off if you don't want them. You can also set how many physical bricks at a time you want (so that you don't overwhelm your computer).
Whenever a brick is fake-killed (for instance, when you shoot it with a rocket and it flies away or if you fire a fakekill event), it now uses real physics instead of falling through the world. The normal rules apply for determining when something can be fake-killed (ie do you trust the guy shooting).
Brick physics are only simulated client side, so you can't stand on physical bricks (although they are shoved around by players/vehicles and if one falls on your head it would bounce off). This also means that the server doesn't know anything about the brick physics, so you can't go totally rube goldberg and have, say, a falling brick trigger a switch or something. You can build neat stuff like the catapult, though.
