This is kind of a tough one to explain, but it's pretty damn awesome.
NaturalMotion's Endorphin 2.5 was shown of at Siggraph 2005.
http://www.naturalmotion.com/pages/demos.htm
Look at the upper-left video first. It's amazing stuff to see.
Long story short, this program seems to take dynamic physics ragdoll-style animation and throw in a system of muscles and slight artificial intelligence to handle things in real-time.
If this kind of technology were to be put into a game, you could shoot an enemy at different angles and he'll stagger back properly instead of just becoming limp, even down a staircase. Or, as the football examples in the video demonstrate, the characters could properly move their hands (and the rest of their body) to shield their head and catch their fall after being thrown into the air.
Not only that, but with the car jumping example, you can see the way the character could wind up in a predefined pose after any physically simulated scenario. This could lead to some really cool stuff in a game.
Oh, and if you check out the main site, there's a free personal learning edition (!) to dick around with.
