Interaction is key.
Art and digital media are very important components of gaming. A game can have a great concept but fall flat on its face without some sort of digital representation, whether it be images, sounds, or even physical feedback such as vibration, that allows us to interact with the code that runs the game.
Art can be applied to gaming in two ways. First there is the art within the game itself, which is usually created by the game developer. The art is used to provide representations with which players can interact with the digital world. The other type of art in gaming consists of artists translating their real world talent to the digital world in games like Second Life, where most of the content is user-generated.
Professor DeLappe’s demonstration of his Ghandi Project in Second Life is a good example of this. By creating an interface between a computer and an old treadmill, DeLappe was able to express himself in Second Life by physically exerting himself in the real world, by walking 240 miles in both realms. Another example of mixing reality with gaming is Aram Bartholl’s first-person shooter glasses, which are below.

My brother introduced me to “augmented reality” a few months ago and I can see a lot of practical applications for displaying data with respect to real world objects. Below is a video of a game that was for the Gizmondo:
If you have a webcam and want to try out augmented reality yourself, check this out: Papervision – Augmented Reality

