Typically the things that previous made graphics 'good' were simply resolution and color depth. Early 8-bit home computers were often limited to just 1 or 2 colors per sprite. Machines such as the NES increased this to 3 or 4 colors per sprite, which makes a dramatic difference.

Along came something like the SNES, which although it shares the same resolution as the NES (256x220 or something along those lines), it had access to 32,000 colors instead of the 64 available to the NES, and it could use up to 16 per sprite. That's the main reason why SNES screenshots look so much better then SNES screenshots.

Once 3D came along, graphics looking 'good' became more complicated than just resolution and color depth. The original Playstation suffered from texture maps that showed artifacts, became distorted, and had edges that appeared to 'jump' around.

As the hardware became faster and fixed those issues, more techniques were added for lighting, shading, and a hundred other enhancement which got us to where we are today.

Mainly because you were comparing the new graphics with the old ones, and marveled at the "progress", even if they were nothing like real-life.

Also, around the time when the switch to 3D graphics happened, the 3D ones looked a lot uglier than some 2D games that seemed prettier, which had better art and colors.

I think it's less of a matter of good/bad than a bunch of other factors such as detail, immersion and novelty compared to what was available before. The graphics looked good in the context of earlier graphics systems, and I doubt it will be different with the current generation of 3D games.