That particular game is more enthralling because it gets you high, and has some mind-control elements. The plot for that episode involves Riker on vacation receiving the game from a lady friend of his. He gets hooked, takes it back to the Enterprise and shares with with all of the crew. Wesley and his lady friend don't play it, see everyone else becoming mind-controlled podpeople, and save the Enterprise by getting everyone deprogrammed. At the end of the episode, Riker's lady friend shows up, expecting the crew of the Enterprise to be under her control.
To answer the rest of your question, yes video games still exist. There are games in the holodeck/holosuite. Beyond just using the holodeck/holosuite as a simulated field for games to be played (i.e. making a baseball field, or the 3D racquetball game Miles and Bashir play), the Vic Fontaine arc where his casino is taken over by a rival is essentially a sort of Sim-casino game. In addition, I recall a DS9 episode where Rom got hooked on a handheld game that Nog owned, but can't recall more details on that.
There's also dialogue at the start of the DS9 episode Blood Oath where Quark mentions a Klingon battle being played out in a holosuite. The key thing is that the person using the holosuite keeps losing the battle. The ability to lose is a commonplace component of video games, as it is a way to set the player back until they successfully accomplish some goal. Quark's description that you can lose the battle shows that the holoprogram is interactive in a way that directly mimics modern video games, it's not just an immersive non-interactive movie.