It's clear that graphics alone do not make a good game. But graphics do remain very important in games, especially in 3D oriented titles.

For one, better graphics capabilities give game artists more flexibility in creating the right look and feel in a game. Think for instance how Team Fortress 2's unique visual style has been made possible by the advanced capabilities of modern 3D hardware and the Source engine. While graphics are getting closer and closer to photo-real, many game developers in the future will likely favour a more pseudo-real, stylised look. Why? In order to avoid falling into the uncanny valley.

While there is an obvious trend towards photorealism (this trend is nothing new), many of the best games of this generation aren't quite photorealistic. For example, in GTA IV, while the cityscapes are rendered in a more realistic style, the characters are rendered differently. Even in Crysis, while the environment looks amazingly real, the human characters are ever so slightly cartoony.

But ultimately, your question, pitting the world of Pokemon against Crysis is a bit pointless. It's like asking why people shoot live action film when animations can be just as entertaining. I'm not sure if titles like GTA IV or Crysis or CoD4 would have the same impact if they looked like Pokemon.

No sharks, but this article has a nice picture. Cool that it looks like something from low budget TV sci-fi (except that it's real)