An article over on GameDev.net from Dzmitry Malyshau starts off light with a discussion of Particle Systems and pitches a way to build Particle Systems that run entirely on the GPU for blinding speed and a huge jump in the number of concurrent particles. Then he adapts this to do Fur simulation, and finally adds lighting effects. In the end, he has a simulation of 50,000 connected hair strands running in real-time at 24fps.
Due to the fact that each fur strand is rendered independently, the vertex processing load may be higher than that of shells for some scenes. However, fur rendering operation is generally fill-rate limited (not counting the artificial test-case). This, combined with Unified Shading Architecture of the current-generation GPUs, balances increased vertex load with an absence of the pixel shader overhead on empty areas.
Get all the gory details and pseudocode at the link below.
