  Spurred by rich, multi-wavelength observations and enabled by new
simulations, ranging from cosmological to sub-pc scales, the last decade has
seen major theoretical progress in our understanding of the circumgalactic
medium. We review key physical processes in the CGM. Our conclusions include:
(1) The properties of the CGM depend on a competition between gravity-driven
infall and gas cooling. When cooling is slow relative to free fall, the gas is
hot (roughly virial temperature) whereas the gas is cold (T~10^4 K) when
cooling is rapid. (2) Gas inflows and outflows play crucial roles, as does the
cosmological environment. Large-scale structure collimates cold streams and
provides angular momentum. Satellite galaxies contribute to the CGM through
winds and gas stripping. (3) In multiphase gas, the hot and cold phases
continuously exchange mass, energy and momentum. The interaction between
turbulent mixing and radiative cooling is critical. A broad spectrum of cold
gas structures, going down to sub-pc scales, arises from fragmentation,
coagulation, and condensation onto gas clouds. (4) Magnetic fields, thermal
conduction and cosmic rays can substantially modify how the cold and hot phases
interact, although microphysical uncertainties are presently large. Key open
questions for future work include the mutual interplay between small-scale
structure and large-scale dynamics, and how the CGM affects the evolution of
galaxies.
