This assumes you have the physical forces from v1.0 (highly recommended to try and get them somehow if you started with v1.1). If you just drop a force (like directional force) into your scene it affects all objects by default (makes it hard to have one ball bang into another when both balls are flying away in the same direction!) The trick is to make the force a child of the object you want to affect using the sequencer tray at the bottom (drag the force onto the object in the tray and voila). Then your force only affects the object it is a child of and you can have two balls collide just fine (the force is with one ball but not the other which doesn't move until the ball with the force bangs into it). For each object that is to participate in the physical force game, you have to set motion to physics in each objects Motion/Transform area. If you're using the physical forces you don't do keyframe animation to make things move you just let the forces do the work (I think you can mix in some keyframing for things like shader changes but I haven't tried that yet). Anyway these physical forces are a lot of fun to play with and seem like they could lead to some powerful results.

I have a question about installing it. I have carrara 1.0 .. is the only way to install physics to first install a c1.00 then upgrade to 1.01 then install 1.1 ? is there way to just extract the files from the cd and dump it into 1.1? I want to play with the physics but the onlyway I have heard to do it is to install c1.1 over 1.01 and right now I am just way to busy (lazy?) to reinstall everything.

There are two Physics.* files in the "ext" directory of v1.0. Maybe you could just copy those over to the v1.1 ext directory. I upgraded v1.0 via the free online patch and then installed the v1.1 cd on top of that.