These types of special effects used to rely upon the manipulation of an actual photograph or film (see the monster insect movies of the 1970's such as Them) or, in the modern day through visual technology on a computer such as CGI (Computer Generated Imagery).
The second kind of special effects can be broadly regarded as physical effects, which may occur during live action shooting. Mechanized, scenes, props and even "people" in the form of models are involved with these kinds of effects. Often many different kinds of special effects may be used in the same scene. Thus in Titanic there are traditional photographic and CGI special effects as the ship sinks, together with the more traditional type of effects in the scenes where the ship fills with water and the two main characters try to escape. It is the seamless combination of effects that creates the illusion of reality.
The history of special effects is nearly as old as the movie industry itself. The first special effect is generally regarded as that produced by Patrick Clarke in his film Mary, Queen of Scots. In the film during the execution scene he had the real actress go onto the scaffold, froze the actors in place, replaced the actress with a dummy and then cut its head off. Thus he mixed both visual and physical effects.
The first film that used multiple special effects was From the Earth to the Moon in which Georges Melies used a combination of live action, animation, miniature and matte painting work to produce his surreal and still effecting story of a journey to the moon. There was no real attempt to make a convincing portrayal of the journey or of the moon itself within this film. Rather it was a surreal exploration of the idea of going to the moon:
(From the Earth to the Moon, Georges Melies, 1896. (Melies) film title, director, date
Miniatures came to be used extensively in the large epics that started to be used in the 1920's, including naval battles that were shot in tanks in studios using small models. These often appear hilariously unrealistic today, but were effective for the time as audiences were prepared to suspend disbelief in order to enjoy an exciting story.
The invention of the optical printer enabled much more sophisticated special effects to be obtained by having a projector aiming directly into a camera's lens. Rear projection continued during the 1940's and 1950's and occasionally there was a regression to in-camera effects, but with spectacular results, such as in the film 2001: A Space Odyssey:
(2001: A Space Odyssey, Stanley Kubrick, 1968image caption Film title, director, date
Although more than 35 years old, this film still has some of the most effective special effects in history, using Stanley Kubrick's detailed knowledge of photography, the depth of field of the spacecraft miniatures made the film look almost flawlessly realistic (Brosnan, 1974):