Physical Interaction Design” involves the design of objects for sensing (usually humans) and displaying information (to all our senses). It involves making new devices with embedded sensors, electronics, microcontrollers and communication. We believe that the best way to do Physical Interaction Design is with rapid iteration of working prototypes.
Why “Physical Interaction Design”?
“Desktop computing” has for over 20 years relied on the same style of interaction, which is shaped by bit-map, keyboard and mouse. “Laptop computing” offers only minor variations on the mouse (pad, stick, ball). “Mobile computing” seems to be converging around the PDA (stylus) and mobile phones (buttons and small screen), but innovations are still happening (cameras). Some conventions are well established (TV remote) but should be challenged. Some interaction styles have never been well coordinated (vending machines).
At Ivrea, we are interested in creating new styles of interaction, which will depend on new controls and displays. “Ubiquitous computing” has not settled on standard devices or a common style of interaction. In fact, the idea of “embedded computing” is that we might use almost any thing that can become sensors and actuators. Every interface can be unique; every object can be interactive.
This is a broad field and Interaction Ivrea has mostly focused on personal interactions to communication-based applications, using ambient displays and tangible controls. By “ambient” we mean background or peripheral information, which is more likely “cool” or fuzzy or emotional than “hot” or precise or definitive. Tangible interactions involve explicit contact with hands and bodies not remote sensing and inference.

http://courses.interaction-ivrea.it/physical_computing/index.html

Researchers have developed a cybernetic system to allow physical interaction over the internet. The system allows touching and feeling of animals or other humans in real time, but it’s first being tried out on — chickens. Built by a wacky group of researchers at the Mixed Reality Lab at the National University of Singapore, the Touchy Internet works as follows: Read more on this link
http://www.wired.com/news/technology/0,1282,67513,00.html

http://hci.stanford.edu/research/dtools/