Watch some animated or entirely CG movies. They look nothing but real life, but feel far more real than any video game. This isn't due to short-comings in the visual quality of games. It's the believability of the physics of the video game world and the behavior of its inhabitants.

Play any 3D video game on the market and it's almost guaranteed that you'll see blatantly unphysical things happening. In most games, your own character will move in ways such that parts of his body and clothing appear to magically pass through each other without interaction! Run up to a wall and you'll either be stopped by an invisible force or parts of you will go into the wall like it was nothing, or both! Jumping and running and fatigue are almost never even remotely realistic.

As bad as physics are, the behavior of the other creatures and beings you encounter is usually much worse! Even the best RPG's have dialogue and interaction that would be absolutely baffling and weird if encountered in any other setting. Here's a humorous video most Skyrim fans out there have already seen that illustrates the problem nicely.

http://www.youtube.com/watch?v=YEMD28MMtNg

The next major leap in video game fidelity is not going to be graphics. Quite frankly, they're good enough now that you can suspend disbelief. It's the way things move, interact, and how game creatures behave that really needs to improve. Yes, in ten years Crysis is going to seem hilariously bad, but it won't primarily be because of how a static screenshot looks. In fact, I bet in ten years you'll be able to look at a screenshot from Crysis and say, "Gee, that looks pretty good actually!", but when you try to play the game it will feel very primitive.

In the near future I think we're going to see games devoting a lot more processing power to simulating the physics of the environment. We're going to see greatly improved motion capture technology for video game actors bringing much more realistic facial expressions to video game characters. The most difficult task ahead is getting video game creatures and character to behave realistically when they're not reading from a script. That's going to be much harder and will likely take much longer than a decade to perfect.

Incidentally, with video games taking increasingly large amounts of money to develop and now being viewed as a form of art, I wonder if more attention will be made to not just preserving them for the future, but making them upgradeable to utilize the future's technology. e.g. Already we're seeing modding communities springing up to improve various aspects of obsolete games years or even decades after their developers abandoned them. What would happen if video game companies started planning for future re-releases? i.e. Spend some extra time when coding games such that people ten years in the future can easily rip out an out-dated graphics engine or AI behavior module, replace it with something more modern, and then re-release the game for another hit of profit.

This would be, for video games, similar to the advent of home video. Before home video came along, old movies were trash in a film canister as far as the producers were concerned. Most movies, once they'd had their theatrical run, were done making money. Now movies that are a hundred years old can make people money! People do currently play old video games, but on a relatively small scale since the difference between Pong and Skyrim is a lot bigger than the difference between "Battleship Potemkin" and "Inception". When you look at all the wonderful design, art, and acting that goes into a game these days, it seems like an incredible shame that the current state of video game physics should render the whole works primitive inside of ten years. I think the economics of the video game business have reached the point where these assets are too expensive to just throw away on the video game equivalent of a "theatrical run". I think companies are going to start saving stories, performances, artwork, etc. and then release new versions of games in a decade or two.