Unity's built-in physics engine is ready for you to hook into it, but it will ignore your Game Objects unless you opt in by adding a component like Rigidbody to your Game Object. Rigidbody is so-named to differentiate it from soft body dynamics, which are calculations that actually distort and deform your meshes. Soft bodies like cloth are partially supported in Unity 3, after numerous developers requested the feature. You can view and vote on upcoming Unity features here: http://feedback.unity3d.com/forums/15792-unity.
Rigidbody dynamics treat all of our objects as if they're made of wood, steel, or very stale cake. Collider components tell Unity when Game Objects crash into each other. As both our