PHY is the physical layer of OSI network model. PHY consists of 3 sublayer generally -- PCS (Physical Coding Sublayer, PMA (Physical Medium Attachment Sublayer) and PMD (Physical Medium Dependent Sublayer). On one end, PHY is connected to optical transceivers or RJ45 jack directly; On the other end, PHY is connected to MAC.
Inside PHY, there are some configuration and status registers, which could be accessed via MII interface by software programming. Mostly, MII is connect to MAC, and sometimes is hooked to host CPU like MIPS, ARM or PowerPC.