BruceDoh

Generally the way physics works in networked games, is that the server handles the "real" physics. Each client will also simulate the physics, however it will be constantly receiving updates from the server, which override the physics the client has done. The reason it is done this way is to give the illusion of zero latency, while making the server "authoritative", meaning the server's data is more highly valued than the client's data, which could be tampered with by cheaters. Client side physics simulations make it so when you perform an action, you don't have to wait for the message to go to the server and relayed back to you before seeing the results. Having the server simulate the physics means that everyone should see approximately the same thing regardless of how out of sync they are. It does get quite a bit more complicated than that for games like this, or first person shooters, where it would be a bit unfair for a player to aim perfectly, and not hit the player because they are out of sync with the server. A player shouldn't have to compensate for lag when aiming. Basically there is a lot of give and take, and most solutions to these problems introduce new problems. It's basically a balance between making a consistent simulation for all players, making what the player sees as close as possible to what the server is doing, reducing rubber-banding, and reducing the ability of players to cheat. So to answer your question: Yes, the physics run on the CPUs of both the client and the server. Although rarely games will leverage the GPU as well, with most of the work being done server-side, this is unlikely.