It’s an interesting video, I suppose more so if you didn’t experience game history in real time like those of us who did. No one ever thought Half-Life looked real. But wow, if you experienced games starting with text only and colored squares like I did, each new capability was incredible.

Nobody thought that it looked real, but people were impressed that it could represent reality. Five years before Half Life the most cutting-edge FPS couldn't do slanted floors or have one room on top of another, and every enemy was a 2D sprite shown from eight different angles. Two years before Half Life the cutting edge was the muddy brown abstract fantasy environments of Quake. There'd been attempts to represent realistic environments in Build-engine games, but they had their own sets of limitations. Half Life was one of the first times that we had a 3D game where things just looked like the things they looked like. You'd never mistake them for the real thing, but you could easily tell at a glance what they were supposed to be, which wasn't the case only a short time before.

I was reading one of my old magazines and there was an article mentioning how water on Unreal(the original) was so close to real life.

Also I remember playing Alien vs Predator FPS and mentioning to a friend that games couldn't get much better graphics because it was almost indistinguishable from reality

I know you are just responding to this as a comment, but really the entire video is about this. It's not a question you are supposed to answer, it's just a title to play with ideas.

it's a short video, and I enjoyed it, it's worth watching.