The Machines take control of Earth. Man fights back. In the resulting power struggle, the world is decimated. And the Machines win. After discovering they can subsist using electricity generated by the human body, the Machines create a grand illusion to fool humans into serving them.
Nothing is real.
It's at this point that the film opens with a select group of men and women who have hacked their way out of the Matrix, discovering their true identity. A few of them re-enter the Matrix to battle the Machines which present themselves in the form of humans. Since nothing is real inside, laws of physics need not apply. Everything centers on how much your mind can disbelieve. If you think you are falling from the top of a skyscraper, you are.