Turn off your TV and try to play a game, it's crucial! 
Far more so than audio.
If we talk about good and bad graphics, good graphics (for example Mario Galaxy, Kameo, Ratchet & Clank: Tools of Destruction) helps making a game far more appealing to most, just like a movie with good costumes, scenery and special effects makes it far more appealing to watch for most people.
Some games are more in need of good graphics from a technical perspective, a horror, thriller or realistic movie/game is normally more in need of good lighting, convincing special effects, etc to feel convincing and would not be effective with cute cartoon-like graphics (which are usually less demanding).
But if you want to talk about technicals, there's so much more to this than just good graphics. Technical abilities regard many different aspects of a game beyond just pretty visuals, it regards game complexity in general. Better AI, (hyper)realistic physics, more content variety, more action possible on screen, etc, etc. Basically fewer technical constraints allow for more creative freedom for developers, still you need suitably competent developers. Some top developers (like Nintendo devs) are able to create more with less compared to less competent developers.
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