http://en.wikipedia.org/wiki/Realism_%28art%29
Realism in the arts may be generally defined as the attempt to represent subject matter truthfully without artificiality and avoiding artistic conventions, implausible, exotic and supernatural elements.
I think that if we stick too close to these definitions, few videogames can actually be called "realistic", as it's hard to find examples of them that don't include exotic locations, have only natural lightning/effects/colors or are entirely plausible.
In the context of this discussion, I would call "realistic" graphic design (or art style) to those visual designs that try to convince you that take place in our world/universe, despite any exotic element or visual distinction they might include. For example, Killzone, Uncharted, Resident Evil and The Last of Us would qualify as "realistic" design to me as their character design, lightning, textures, color palette and so on try to stay close to what we see in our world. These games strive for photorealism and believability in its designs, even when they portray supernatural or extraordinary elements/situations.
On the other hand, something like Street Fighter IV or Fable would qualify as "fantasy" graphic design to me because of their character design and the way they're portrayed, or some elements of its scenery, use of colors, proportions, etc.
On a related note, and from my point of view, I'm seeing nowadays an increasing interest of making fantasy media more realistic in some form or another, which fits into what I mentioned earlier about how realism is generally more respected these days... Street Fighter IV reminded me of that...
Anyway... Just an opinion...
