Their are three major walls in computer hardware. The first is heat and the other is power density. Now what do I mean by wall exactly? I mean a fundamental physical limitation that cannot be removed that restricts something from going beyond a certain point. These walls can be delayed by using smaller transistors but they are still always present and can never be completely removed.
The Heat Wall
This wall refers to the fact that if a transistor transists to fast it generates to much heat and causes the hardware to fail. This is sometimes also refered to as the megahertz wall. We already hit this wall. The second generation of pentium 4 processors pushed barely past 3 GHz. This was the first time that a microprocessor was ever limited by how much heat it was producing. By all means the pentium 4 processors were easily capable of running at speeds as high as 8 GHz but if we pushed them to far past 3 GHz they began to over heat on a traditional air cooler. This is what forced intel to look to multicore technology to make faster processors. Simple put they couldn't get their processors to run any faster thanks to the heat wall so instead they starting chopping the cores into pieces that could act as an individual processor. These multiple cores allowed the processor to gain more processing power by performing multiple operations simultaneously rather than performing operations at a faster rate. By using smaller transistors processors could generate less heat at the same frequency and by using more powerful cooling solutions we could let processors generate more heat without failing, but both of these only made small improvements to each subsequent generation. GPU's kept going on the other hand until 2008 when nvidia finally hit its own heat wall when it hit 1500 MHz with the 8800 series (ATI is still going but is far behind nvidia in frequency).
The Power Density Wall
The power density wall refers to the simple fact that once you are cramming to much power (electricity not processing power) into to small a space it causes the electrons to jump easily from circuit to circuit which causes the hardware to fail. This wall is also alleviated by using smaller transistors which can be packed more tightly together.
The Atomic Wall
This refers to the concept that edventually the silicon transistor will become so small that we cannot make smaller transistors since anything smaller would be unstable at the atomic level.