Collision

The Collision modifier allows you to detect when the geometry of one model intersects with the geometry of another. To improve performance, simplified geometry is often used. Instead of using the exact shape of a mesh, you might find it preferable to detect collisions using a bounding sphere or a bounding box.

Here's a demonstration of how the Collision modifier works.

Source code for Mac and Windows. (The movie requires a demo version of the OSControl Xtra).