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This paper focuses specifically on one Shader Model 3.0 feature: Vertex Texture Fetch (PDF). It allows vertex shaders to read data from textures, just like pixel shaders can. This additional feature is useful for a number of effects, including displacement mapping, fluid and water simulation, explosions, and more.
The image below shows the visual impact of adding vertex textures, comparing an ocean without (left) and with (right) vertex textures.
Images from Pacific Fighters (used with permission)