What is Physical market, paper market?

Example 1.3 (A monthly crude swap)

An airline buys a swap on 100 000 barrels a month for the next quarter at a fixed $82.00\,\$/\mathrm{bbl}$ against the monthly average of a crude benchmark. If the benchmark averages $85.40\,\$/\mathrm{bbl}$ in the first month, the airline receives $3.40 \times 100\,000 = \$340\,000$; if it averages $79.10\,\$/\mathrm{bbl}$ in the second, it pays $\$290\,000$. Whatever it pays for its fuel in the physical market, its net cost per barrel is fixed near $82, up to the difference between the fuel it burns and the benchmark it hedged, which is the subject of the last section.