When you say 'synthesis' do you mean pure analog/additive/FM synthesis from scratch, or would a sample-based approach be acceptable? If you can't use combinations of real-world audio samples then this is more complicated process. Trying to generate truly realistic sounds through synthesis isn't the standard way that most game/virtual instruments/sound designers work.
If you do need something that's based on real waveform synthesis, like what you linked to, you probably need to perform a harmonic analysis of a large variety of sounds. Performing a harmonic analysis of various sounds will allow you to break real world sound samples down into fundamental sine waves. Keeping a data structure that associates each sound with its harmonics will probably allow you to interpolate new sounds semi-realistically. Using all this harmonic data, you can then construct the sounds again through additive synthesis. To do this from scratch you will probably need:
A large database of samples that you will associate with a wide variety of physical conditions. (In your case, samples of a variety of materials of various shapes at different masses.)
From there you will probably need to perform a harmonic analysis of each sample to break it into fundamental waves. Each sound can then be synthesized again via additive synthesis of its fundamentals.
Interpolating new sounds should then be as simple as comparing the fundamental waves of one or more sounds, and interpolating between them. Like light, the physics of sound is pretty complex, so the odds of generating a truly realistic sound this way are pretty slim in my opinion. But analyzing a larger, more diverse pool of samples will probably result in more realistic results.
If you can't use harmonic analysis of real world samples for some reason, the scope of this problem will become a lot bigger - as sound synthesis usually relies on combination/modulation of fundamental waveforms, you'll need to use physical modelling synthesis instead.
However, if sampling is acceptable, the question becomes how accurate of a simulation are you going for? From what I remember, Valve's Source engine has a relatively similar method of combining sound samples for the same/similar effect (when a plastic prop collides with a metal one, they generate a 'hybrid' sound). If that's acceptable, then you will need to:
Gather one or more audio samples for each material. The more specific your materials, the better (i.e. plastic sheet, hollow plastic, hollow metal, metal sheet, solid metal, thick wood, thin wood, etc.), and having multiple audio samples per material will create more variety and less computer-like, 'uncanny valley' repetition.
When a collision occurs you can mix the audio from the samples of both objects depending on the force of the collision, the mass of the objects, etc. More forceful collisions will probably result in louder sounds, while a more massive object will likely sound at a lower pitch than a less massive one. One again, if you can afford to record a larger pool of sounds for objects with different contours or masses it will likely increase the realism of your final result.
Finally, if you can create a 'physically-based' reverb effect based on your environment it will help ground your sounds in the environment. Things sound different in large rooms when compared to small rooms and outdoor environments.
I've never attempted this so I've only given it a little bit of thought, but from what I understand this is how most commercial virtual instruments create realistic sound performances. When 'VST' makers try to recreate the sound of a violin, they usually do so through extensive sampling of a real violin - sampling various notes on each string played at different velocities, using different playing techniques, and so on. Creating realistic sounds through pure waveform synthesis is interesting, but it's certainly not the standard practice in game engines at the moment. Good luck.
Edit: I didn't touch upon the physics engine part of your question, but I'd assume that most physics engines should be able to detect collisions for you and present you with information about those collisions (force/object mass/direction vectors/etc.).
