It's worth remembering here that the objection is not that children do not possess the ability to recognise the difference between fantasy and reality, rather it's that they're "impressionable". Their behavioural patterns are still being established, via a system of negative and positive rewards for their behaviour.
Normally, when a child commits a needlessly aggressive act, they are negatively rewarded by their parents telling them off, or possibly by the parents hitting them in (hopefully) extreme circumstances. When a child plays a violent video game, the game purposefully rewards violent behaviour with things like progress, a sense of achievement, unlockables/collectables, etc.
Being children, they unconsciously associate the endorphin rush with aggressive acts, or at least, the aggressive acts they commit to video game characters. The obvious question, of course, is whether that positive association with simulated violence corresponds to a positive association with actual violence, or even just aggression. That's something for the behavioural psychologists to decide. Until they do, I think it would be wise to exercise caution.