Physical Inventory is a Process in which Company Stops all his Goods Movements and Do a Physical inventory Manually.

To avoid Inconsistencies which may shut down business process.

Physical Inventory Can be done in four ways :

Cycle Count

Periodic Count

Continuous Count

Sample Count

You can do Physical inventory for the materiuals which are in Unrestricted, Quality & Blocked State.

You can Block the Goods Movement or Freeze book Records during the Physical Inventory Process.

step by step : 

   First Create a Physical Inventory Document through. MI01 T code

   Count the Stock Physically and enter the same in MI04 T code.

   Post the Difference in MI07 T code.

If Inventory Stock is more than as per your system it will book records 701 mov. reason will take place.

If the inventory is less then it will get deducted by 702 Mov.

Than check the stock in MMBE.

Check all the reason for movements for Physical Inventory postings.

You can Enter the Count i.e. You can do MI10 (Enter the Physical Inventory Values) with out creating Physical Inventory Document MI01.

If difference is more you can recount the Stock and enter the same in MI11 T Code.

You Use following links for your references

/people/community.user/blog/2007/05/04/physical-inventory-in-material-management

this link is more useful for you for providing the training to your users but before that you need to have complete knowledge of the Process.

http://www.sap-img.com/materials/physical-inventory-process.htm

http://help.sap.com/saphelp_erp2004/helpdata/EN/4d/2b8e3d43ad11d189410000e829fbbd/frameset.htm

MM - Physical Inventory Concept