What happens to the Processor?

[iphoneprogrammer]

When i go to buy certain games some say iPod 2g only. I am led to believe that this is because that game is made only for the processor of the Ipod touch 2g, and is there any difference between the processors of the iPod 2g &1g? That being the case does that mean that certain games are built for only updated versions of a processor. Lets take Pocket God for example. It was originally built for firmware 2.0 but now its built for 2.2.1. Does that firmware update actually change the processor in any way allowing better graphics and features? I don't understand how the ipod 1g and ipod 2g can have the same features of the 3.0 firmware but have different processor (one is more outdated than the other so i don't see how it can preform the same tasks). If someone understands what i am saying and can help me out i would greatly appreciate it.