During a press event last year, Nvidia introduced PhysX FleX, a particle-based physics simulation that lets different effects affect one another. GPU-driven engine promises seamless interaction between rigid bodies, fluids, cloths, and other objects in real time. The initial demo reel released earlier this year is loaded with slick effect interactions, and the latest footage is even more impressive:
I really dig the combination of smoke, blocks, and cloth in the brief snippet starting around 0:23. All the effects look pretty good, though.
FleX is part of Nvidia's GameWorks program. It's currently in beta, and it's available as a standalone library for programmers who want to get their feet wet. The simulation engine will also be integrated into Unreal Engine 4, which should give plenty of developers access to the technology. More details are available in this Siggraph paper and accompanying presentation (PDF).