Back in the 1990s, cyberpunk literature envisioned a virtual world, where people could leave their physical bodies and merge in a posthuman reality. Neal Stephenson's Snow Crash and William Gibson's Neuromancer led the wave of the future: a plane of virtual existence where someone's avatar acts as ambassador into a new realm with different rules for interaction.
According to James Patrick Kelley and John Kessel in the introduction to Rewired: The Post-Cyberpunk Anthology, cyberpunk was defined by several obsessions, most notably "the way emerging technologies will change what it means to be human" and more to the point, "that we are no longer changing technology; rather it has begun to change us".
What then, is physical computing, and how does it relate to the literature of cyberpunk? Where cyberpunk embraced the virtual to the fullest extent possible, even going so far as to reject the physical body, seeking to replace the physical with the virutal, physical computing seeks to extend the physical presence through computer operation. Physical computing tends to bring about behavioural changes. From what I've seen and read, there is no attempt to "merge" with the computer, but instead to allow it to extend human capabilities.
As the name would suggest, physical computing is very much interested in interactions with the real world. Many physical computing projects are based around small microprocessors, like the Arduino. More important than the controller, however, is the way in which these projects interact with the environment. Numerous sensors measure the environment, which then provides meaningful feedback.
Some of the more interesting examples of physical computing change the way we interact with technology. Take the GPS locked treasure box, which will only unlock at particular coordinates, telling the user how far away the correct location is.
Another interesting example of physical computing is a gumball machine that only dispenses candy when a particular code is knocked on the case. A shave and a haircut isn't only good at getting cartoon rabbits out of hiding.
Physical computing is interesting precisely because microcontrollers can be used to influence behaviour. This promotion of interactivity is likely one of the reasons why physical computing has been embraced by artists and tinkerers. One of the more innovative ideas includes e-textiles, like the LilyPad Arduino, where electronics are embedded in clothing.
While the cyberpunk literature of the past presented a world where the virtual was embraced, where skill and craft was expressed through digital code, divorced from the physical world by engineers and hackers, physical computing fully engages the physical. Microcontrollers now provide the heart of interactive art projects, and form the focus of new engaging projects by educators.