Magic Carpet is one of my all time favourite games and, to my knowledge, no game since it's release back in 1994 has similar gameplay.
The game is very much an FPS at its core, and, like a good FPS, there is a lot of strategy in it. You fly around on a carpet trying to build your castle while you fight off enemy wizards, which are either controlled by AI or other players. Killing monsters drops balls of mana which you cast a possession spell on so that balloons from your castle will go out and pickup the mana. Enemy wizards can re-possess the mana for their own balloons, so it's a constant fight over trying to get the mana to your castle. When you have enough mana you can increase the size of your castle, and you usually have to get a certain amount of total mana to win. As a wizard you have possibly the coolest arsenal of spells I've ever seen in any game, and these are detailed fairly well in the Wikipedia entry (http://en.wikipedia.org/wiki/Magic_Carpet_%28video_game%29#Spells).
Nothing gives me a better feeling of power then having just gained a volcano spell and rushing over to my enemies castles to cast a big f’ing volcano on it, followed by some storm lightning and meteors. As the enemy castle is destroyed, bit by bit, it releases mana which you try to possess for your own castle. Of course, just like fresh blood attracts sharks, there will be other wizards there fighting for the released mana. The game is very fun to play even today.
Many years ago I pleaded with them to open source it, but was denied. I see they’ve recently ported it to the Playstation network 16 years after the game came out, which I thought was surprising.
There are some gameplay videos on YouTube such as this one: http://www.youtube.com/watch?v=VnHRiHCxtOE
Magic Carpet 1 is awesome and MC2 sucks. MC2 was easy and boring--it just didn't have the same wizard-vs-wizard battles and cool levels as the first one. So if you give it a shot just make sure you play the first one.