Abstract
The convergence of embodied intelligence and world models has catalyzed growing interest in integrating physical laws into AI systems. While prior surveys have examined world models and embodied intelligence separately, we focus on the progression that connects these capabilities as a unified developmental pathway from passive observation to active physical comprehension. This survey provides a systematic framework revealing how physical AI advances through four interconnected stages: perception transforms sensory data into structured physical representations, reasoning derives explanations from observed phenomena, modeling enables predictive simulation grounded in physical principles, and embodied interaction closes the loop through physical manipulation and environmental feedback. Each stage enables and enhances the next: perceptual grounding supports causal reasoning, reasoning unlocks predictive capabilities, and robust models drive genuine physical interaction. Through analysis of developments spanning architectural innovations, training methodologies, causal inference, and embodied systems, we synthesize how physical understanding emerges through cumulative integration across this progression. Our framework reveals the evolution from isolated, task-specific solutions toward integrated architectures that advance from pattern recognition toward causal reasoning and counterfactual prediction. This perspective provides foundations for next-generation physical AI systems with direct implications for safe, generalizable, and interpretable deployment across robotics, scientific discovery, and autonomous systems.