What exactly are PHY components in Altera products and why are they there?

[Altera_Forum]

I understand PHY has something to do with the physical layer of the OSI Model. What I do not understand is what that something is. Physical layer is about the actual physical connecting wires right? So what does all this have to do with the FPGAs than? 

 PHY seems to be a cool name, I thought it might be an acronym which it is not.

[Altera_Forum]

In general terms a PHY is hardware that converts internal digital signals to external (effectively) analogue ones. 

The simplest one is probably an RS232 line driver chip - although that wouldn't normally be called a PHY. The first common PHY were for ethernet where a fat AUI cable connected the ethernet card to the coax PHY. Later PHY get more complex for Ge a DSP (typically consuming over 1 Watt) is needed in order to recover the data.  The FPGA have special (semi-analogue) logic associated with some pins in order to transmit and receive very high speed signals, these might get referred to as PHY.  If you are doing 10M or 100M ethernet (over twisted pair), a lot of the logic for the PHY (it sends messages to its peer PHY) may well be inside the fpga. In this case simple resistor networks and the pulse transformer are usually enough to shape the anolgue signal itself.