Well first you need to understand Shaders. Shaders are basically programs that overall determine the final look of the overall picture. Shaders take rendered 3D objects made from standard polygons, and make them more realistic.
There are three types shaders, pixel, geometry, and vertex shaders. Pixel shaders basically add color and lighting to 3D objects,vertex shaders render all of that into 3D space, and Geometry shaders add volumetrics and calculate geometry.
There are also pipelines in which these shaders travel through. Most modern GPUS have unified pipelines in which Pixel, Geometry, and Vertex shaders can be mashed together and travel through one pipeline.
With all of this mashed together, you get the picture you see on your screen. This is known as the Shader Model.
newer Shader Models basically add to the simplicity of how shaders operate. For example DirectX10 GPUS required mandatory support for unified shader architectures. The newer the model, the easier shader operations can be executed....
This is of course just the basics. You will need someone like Duckie Ho if you want to know how this stuff truly works..