I've always wondered about CPU usage in games. I know what happens when you run a game with a low end graphics card but I wanted to know how is it that say, for example, a game has a min requirement of CPU with 2.2GHZ and a recommended requirement of 3.0ghz and if you meet the minimum you can still run the game as someone with a higher end cpu ?
 
Like, what in-game settings can you adjust to get the best out of your cpu?

It can vary, but what I personally have noticed is having a lower end CPU feels similar to having a lower end GPU.  Maybe a game will max out at 25fps for you in some scenes instead of 35 if you had a better CPU.  Physics is a big factor, if a huge complex explosion happens with lots of objects maybe a weak CPU will get 1 FPS while a strong one gets 3 FPS (yea I know it's a crazy example but I've had it happen in Crysis Warhead when a building blew up into about 1000 bits for some reason).  So unless physics is accelerated by your GPU or something that's usually something you can turn down.  Sometimes games will have CPU settings like AI pathfinding rates, but usually that stuff is in config files rather than game settings.  Usually the CPU requirements are a bit less flexible in that you can't really change a lot of settings for better CPU performance.

Well, the CPU basically does all physics, AI, path finding, collision detection, deformable geometry (unless nVidia PhysX takes over), skript running and so forth. The sound engine is sometimes tied to the CPU as well.
 
This explains why strategy games and script-heavy RPGs (Dragon Age, Supreme Commander) usually require a lot of CPU power - it's quite literally the strategy being processed. Also the physics in games like Half-Life 2 or the port of Red Faction: Guerrilla run on the CPU. In fact, almost every console port is much harder on the CPU than the GPU, because all the highly optimized console-specific code is just thrown at the CPU to handle.
 
Another prime example is the PC version of GTA IV which is so heavy on the CPU, it's kinda pathetic. The reason is simple: Every car, every peasant and all interaction has to be processed by the CPU - the simulation of the city itself. Of course, everything you see on the screen needs it's shape and textures from the GPU, (these days it's up to ten layers per surface - specular maps, phong shaders, displacement maps etc.), but it's really the CPU that brings the city to life.
 
So yeah, what Diamond said ;-)

Well that clears some things up. See I have Mass Effect on my PC and I'm getting stutters in some parts of the game. Same thing with MW2. I notice when the stutters happen, the busy light on the PC flickers for a bit. So I'm trying to figure out how I can reduce this. Should I let the cpu do the physics or my gfx card? 
Will enabling PhysX put more strain on my card?
 
My current setup is:
Windows 7 64-bit
Intel Core 2 Duo 4500 @ 2.2ghz
4GB RAM
XFX 9800GT XXX
 
It's not an awesome computer but it was cheap for me to build at the time.

Well that clears some things up. See I have Mass Effect on my PC and I'm getting stutters in some parts of the game. Same thing with MW2. I notice when the stutters happen, the busy light on the PC flickers for a bit. So I'm trying to figure out how I can reduce this. Should I let the cpu do the physics or my gfx card?  My current setup is: Windows 7 64-bit Intel Core 2 Duo 4500 @ 2.2ghz 4GB RAM XFX 9800GT XXX   It's not an awesome computer but it was cheap for me to build at the time.

Diamond is right with his last sentence. It sounds like there is simply not enough system memory available and the U3 engine needs to pull information directly from the harddisk. It could also be that the memory on your graphics card runs low and stuff (textures, shader programs) is being offloaded onto the harddisk to make room, which induces a few seconds of heavy stutter.

Currently CPU isn't very demanding unless you have less than a tri-core. You see a significant performance increase from dual core, a moderate performance increase from tri-core to quad core, and almost no increase from quad core to i7 except in some games.  
 
With a dual core you should be fine as long as you set CPU related tasks such as physics, dead bodies, depth of field etc. to low-medium settings.