I review the progress of SPH calculations for modelling galaxies, and resolving gas dynamics on GMC scales. SPH calculations first investigated the response of isothermal gas to a spiral potential, in the absence of self gravity and magnetic fields. Surprisingly though, even these simple calculations displayed substructure along the spiral arms. Numerical tests indicate that this substructure is still present at high resolution (100 million particles, ~10 pc), and is independent of the initial particle distribution. One interpretation of the formation of substructure is that smaller clouds can agglomerate into more massive GMCs via dissipative collisions. More recent calculations have investigated how other processes, such as the thermodynamics of the ISM, and self gravity affect this simple picture. Further research has focused on developing models with a more realistic spiral structure, either by including stars, or incorporating a tidal interaction.