Shader Model 2.0 is a graphics programming standard introduced by Microsoft as part of the DirectX 9 API. It allows developers to create more complex visual effects in video games and applications by using programmable shaders. This model supports vertex and pixel shaders, enabling greater control over how graphics are rendered on the screen. With Shader Model 2.0, developers can utilize up to 128 instructions in their shaders, which enhances the visual quality of 3D graphics. It also introduced features like dynamic branching and improved texture handling, making it a significant step forward in real-time rendering technology.