I think the author and some of the commenters may be overthinking what he meant. My interpretation was simply that graphics had already reached the point where they were immersive enough, and that the industry would have been better off investing more in gameplay rather than continually chasing marginal graphical improvements.
I don't know if I agree Allen Wake was the threshold, but I partially agree with the premise. Some of my favorite games were made decades ago, when graphics were nowhere near what they are today. Yet I remember them as incredible experiences because of the gameplay and how well it worked with the technology available at the time.
Once I'm immersed in a game, the graphics tend to fade into the background and I just enjoy playing. My brain just fills in the gaps of scene quality. Sure, realistic visuals are impressive at first, but they aren't what keeps me engaged.
The bigger issue is that the cost of developing cutting-edge graphics and the increasingly expensive hardware required to run them has reached a point of diminishing returns. The visual improvements are often incremental, while gameplay innovation has lagged behind.
It's a bit like sound on the PC. At which point the improvements became irrelevant?
We played with no sound (apart from the good old PC Speaker, of course).
Ad Lib came along and we have basic sounds.
Creative improved with the Sound Blaster and we had mono sound at 22 kHz. It was awesome. Games had voice! Voice!
Most of my favorite games are from this time.
Then came the Sound Blaster Pro with stereo and mono sound at 44 kHz. We could literally hear better sound. It was more realistic. Games had voice and music!
And them came Sound Blaster 16 which was technically better, but, yeah, if we used it for specific purposes we could say it was an improvement, but almost no one noticed the sound difference.
And finally Sound Blaster AWE appeared and it sounded exactly the same. The card did have technical innovations and good MIDI support, but we were already at the limit of what human ears could hear.
Innovation then went on so that newer cards could play 2 or more sounds at the same time, not higher audio quality. At 44,1 kHz they were already at the audible limit for humans.
That was the next innovation for games, eventually condensed on PC on the now obsolete DirectSound.
I'd say graphics are now at Sound Blaster 16 level. Yes, there are minor improvements here and there, optimizations are still possible, but the gains are minimal.
And, as someone mentioned before, the costs of the graphic hardware to support all the graphic improvements.
Now, should they have stopped at Alan Wake level...? It's like saying we should have settled with ultra quality mono audio. Stereo was not needed.