The word "Simunition" is actually a trademark that was registered by SNC Technologies Inc. (now part of General Dynamics - Ordinance and Tactical Systems Canada Inc). The word is derived as an abbreviation from "Simulated Ammunition". The technology was invented in the 1980s, with the goal of providing more realistic training to military forces.
There are actually many types of simunition rounds. Some of these types are lower pressure rounds and therefore require the standard firearm to be modified with a conversion kit to properly cycle simuntion rounds. The conversion kit is very easy to install and does not alter the weapon permanently -- it can be easily removed after the training exercise is over, which is a very handy feature to have.
The most common simuntion round is the Simunition FX, such as the examples shown above. These come in common calibers used by police and military forces, such as 9 mm. Luger and 5.56 mm. NATO. The bullet is actually a thin case filled with a colored, water-soluble chemical paste. Upon hitting a target, the bullet bursts and the colored paste spreads on the point of impact. This allows the trainers to determine who has been hit and how potentially lethal the hit would have been, if a real bullet was used. The paste is a biodegradable material and easily washes off with soap and water, which makes cleanup after an exercise easy. This technology is heavily used by the US Marine Corps for training purposes (The Marines refer to it as SESAMS (Special Effects Small Arms Marking System)). US Navy SEALs are also known to use simunition in their training exercises.
There are other simuntion rounds used for various other purposes, such as the Securiblank (for firing blanks) and CQT rounds (for close-quarter situations) and even a training grenade, designed to be fired out of an M203 grenade launcher.
Sale of simuntion is currently restricted to military forces, law enforcement agencies and a list of approved security training companies. The price of simunition rounds is also more than real ammunition. Unlike paintball rounds though, simunition allows the user to use the same weapon that they would normally carry into combat, thereby producing a more realistic training scenario.
