If games are all about fun, then why do people tend to like realistic physics and graphics are good for games?
Can you cite your source?
(warning, controversy approaches)
First of all, how do you define "fun?" Until you can supply us with a universally accepted definition then your very question is itself unanswerable...
I'm not going to cite sources, do your own homework =P
I'm also going to skip past the part where you bias the question by assuming that physics are not fun and are trying to get a negative proof.
But here's the deal for physics.
1) People like internally consistent behaviors in their games, using a realistic physics model is a direct way to give players that consistency.
2) Since stuff does what you'd expect it to in a physical universe you don't have to teach them how to play, leading to a comforting sense of competency.
3) Physics as a game play model is still relatively new and therefore it's entertaining because of the novelty of it.
4) Emergent behaviors evoke a sense of wonder, exploration and experimentation is rewarded, and again the novelty aspect arises.
5) Is any of that "fun?" I don't know. It just is.
And here's the deal for graphics.
I posit that graphics have absolute nothing to do with fun. Graphics do, on the other hand, have a lot to do with enjoyment and whether a player likes a game or not.
It isn't about realism or not.
It's about fulfilling a desire for the player.
What you see is that the strive towards "more realism" is simply by trying to put the player closer to the place that they want to be.
So you get better texturing, lighting, physics, etc. is all towards putting the player more into the suspension of disbelief.
Now that being said, it isn't exactly about what's "real", but what people "expect". A perfect example of this is the weapons in Modern Warfare. The guns do not behave at all like they do in "real life", but they behave almost exactly like people are used to seeing them in movies. So when they get a particular gun in their hands and fire it off, it feels "real" in the context of their knowledge.
Speaking only of the physics side of things, an advantage that realistic physics in games have over "cartoon" or made-up physics is that the player intuitively has a feel for how things behave in the real world and can easily transfer that into game scenarios. This makes games with realistic physics more approachable and easier to pick up and play. There is no need to learn how the world will respond to an action if the player already has a good idea of how that same scenario would play out in response the real world. The less time a player has to invest in learning new/strange physics the more time they will have to actually play and enjoy the game, so that may be a part of the answer.
People don't actually like realistic physics and graphics in games.
People say they like realistic physics and graphics. But the games they point at as examples aren't actually realistic at all; they just have fancy shaders and licensed Havok (or some other simplistic physics middleware).
I think you'd be hard pressed to find a game which provided either realistic physics or realistic graphics, apart from those FMV adventures which were being produced back in the early 90s. And you saw how much people loved those.
Everything's stylised and optimised and simplified in video games. Nothing's actually "realistic".
The realism of graphics and physics adds to the immersion of the game, but physics and graphics do not have to be held to a realistic standard.
Fun is not directly associated with realism. Part of what makes a game fun is giving the player a good sense of empowerment. This requires a balanced set of physics rules to be able to do a lot of cool stuff as if it's second nature.
High-profile games are usually held to the standard of summer action Hollywood movies, and from a technical standpoint this actually isn't too bad. Those movies are pretty liberal with physics and visual effects and filled with over-the-top action sequences that only the hardcore engineers and physics geeks will have trouble accepting.
You just need enough realism to that degree to satisfy the average gamer, and they'll be pulled into the game's world. On the other hand, glitches are a sure way to remove you from the immersion and remind you that you're still just playing a game.
Only sim-type games try to make the exception and aim for a true-to-life feel. Case in point, sports and racing games for the serious fans.
Your physics don't need to be realistic to be more enjoyable - there have been a few games with unrealistic physics (for example in Prey you could shrink and control gravity); however they were realistic within the universe described by that game. Another good example of unrealistic physics is space simulators: flying a space craft is actually really tricky business; however they really dumb down the physics for the player - so that they can have dogfights without having to fight with the physics at the same the time. If you can logically explain the physical constraints of your universe (and keep them enjoyable) any player will happily accept them.
Physics, just like the graphics and sound, are a form of escapism. People play games to escape the constraints of reality; games with realistic physics sometimes do some pretty crazy things (that you would never attempt in real life).
With all that being said, the reason that games with realistic physics (according to our universe) are enjoyable to players is because the game so happens to be set in our universe; and therefore the physics are believable - and don't get in the way of the player (because they already know how to interact within those physical constraints).
Your first priority with any game component is to make sure it enhances the enjoyability of the game. If that means your physics need to be realistic; then make them realistic.
Personally I like games to be as realistic as possible, to the point of actually being boring. For example I love EU3 because it is more of a simulation than it is a game. That being said sometimes I like to play a more 'mindless' game that doesn't resemble any part of reality, as I know it. There should be all kind of games for different kind of people, but to say that realistic games aren't fun is false. When you take something like History, and create a game that doesn't depict the time realistically, it really ruins the game for me regardless of whether the game is fun or not because each time I see an inaccuracy I am instantly reminded that this isn't the period I had thought but rather a fictional story based on history. The more realistic the game, in certain circumstances, the better it is.
Realistic physics and graphics are good for a game if the game relies on realism to effectively engage the player.
Consider a game, or series, such as Forza. Forza's aim is to bring the player to a world in which they are driving a high-performance car around famous circuits attempting to break existing records and establish their career as a driver. To facilitate this aim, realism is extraordinarily necessary. Simulating a car's engine, tires, tuning, and handling, as well as track conditions and environmental conditions are clear choices when considering what will help add to the player experience, given the game's aim.
It would be difficult to determine exactly why people are drawn to titles that offer realism, but I think an argument could be made that a major factor is the rapid advance of technology over the past few decades. There's always a great interest in "what's next," so given how quickly technology advanced, we always look for something better, and it happens that realism quickly got on the radar. Graphics are physics are what we focus on most likely because they are much more quantifiable and easily defined than fun or gameplay.