No discussion of video game storytelling is complete without mention of of Half-Life 2. Half-Life 2 was the most significant advancement in video game story telling this decade. By never having you leave the perspective of Gordon Freeman, and having him remain silent throughout, you really felt like you were the protagonist. It created a level of immersion that no other game has been able to accomplish, in my opinion.
Take, for instance, the first section of the game when you're on the run. By having the helicopter shoot at you every time you stepped outside, the game slowly created a Pavlovian response. Eventually, when I came to a section where you had to go out into the open briefly, I felt legitimate fear. Think about what an accomplishment that is. It's easy to create a dystopic world where you can see how scary the oppressive regime is, but to actually make you afraid of it, to make you feel like you are being hunted down and not just a hero you identify with. The ability to replace the protagonist with the player is something unique to video games, and it practically creates a whole new paradigm to what art is and how it relates to its audience.
Think about it. For all of history the way artists got their audiences to experience and understand their art was through the vessel of a relatable protagonist. And when done well, this method can make you empathize with the protagonist and feel the emotions they feel. But the emotions are always one step removed, they always go through the middleman of the protagonist, and it's diluted in the process. Now, video games can remove that middleman. The fundamental purpose of the protagonist is completely gone, unnecessary. The paradigm has shifted: instead of trying to create a relatable protagonist to garner an emotional response from the viewer, the goal is now to create a level of immersion deep enough so that the viewer can experience the emotion directly.
This is the reason why video games as an art have such a huge potential. Eventually, when developers realize the power of this, the focus of gaming advancement will be on immersion, rather than photo-realism. The way you control and view the game will become more and more immersive, and one day they will probably be something like virtual reality.