The link you posted does not contain the word "physical" in it, however with respect to the Brazilian interest rate swaps it does mention "non-deliverable currency."
An interest rate swap is a defined series of coupons or cashflows so the only question remaining is then how to settle those cashflows, with respect to currencies that may be lesser liquid or have onshore/offshore regulations stipulated.
In your link's case the CME has defined the IRS as being "non-deliverable" meaning non-deliverable of BRL and instead all cashflows must settle in USD and they specify the source of the FX conversion rate (BRL-PTAX spot rate). Additionally they stipulate any specific fees written into the contract must be denominated in dollars.
I strongly suspect there is a local market which settles, on an uncleared basis in BRL, and it is entirely possible this is colloquially referred to as a "physical basis", since there is no other definition of physical that really exists for IRS.