An individual's magical realm is the domain of their sexual fetishes, especially in relation to roleplaying games. When a game starts developing or introducing elements of the player or GM's fetishes (either deliberately or accidentally), it could be said to be entering that individual's magical realm (or that the players/party are doing so). The original context it derives from is that of a GM (or /d/M) specifically creating or introducing elements to the game to satisfy their more... esoteric sexual fantasies - for instance, a GM with urolagnia (a urine fetish) describing a strange realm of piss trees or introducing NPCs that demand to be pissed on or try to piss upon player characters.
When the players identify and refuse to go along with this obvious fetish fulfillment, they can be said to be refusing to enter the GM's magical realm, and so forth. When the phrase "Magical Realm" is used to describe a work (say, a setting or pre-made adventure), the implication is that the author either let their fetishes bleed into the work sufficiently to make it very obvious what gets them off, or, more rarely, apparently created the work entirely for the purposes of fapping or schlicking.
In contrast, it is possible for a player to try and force their magical realm onto a setting by acting upon their fetishes or having particular reactions to something as mundane like lizardfolk. A more basic version is simply hitting on every tavern wench from Mendev to Absalom in an attempt to get laid in a way that they player cannot in real life. This is disliked because it puts the gratification of their fetish before the fun of the rest of the group, making them one of the worst versions of That Guy out there.
The origin of the phrase is a Gunshow comic by KC Green called "Piss World", where the players of a tabletop RPG react violently to their GM continually trying to get them to play to his piss fetish, and specifically a panel where an NPC (or possibly a DMPC, depending on how you look at it), the "Whizzard", asks "Dare you enter my magical realm?"
- Forgotten Realms the original "magical realm" of Ed Greenwood
- Monster Girl Encyclopedia, for an example of a setting that both qualifies, and isn't mindbogglingly awful.
- FATAL, for an example of a game system that both qualifies, and is mindbogglingly awful.
- Book of Erotic Fantasy, for an example of a work that doesn't probably quite qualify as a "magical realm", for reasons of being too openly and explicitly about sex.
- Maid RPG, for an example of a work that probably qualifies as a "magical realm", but at least has the excuse that to the extent it is, it's being true to the genre it's attempting to adapt.
- Wraeththu RPG, for an example of a work that qualifies as a "magical realm" twice over, being one reader's Magical Realm RPG version of an already existing Magical Realm series of (non-RPG) works, and an excellent example of what happens when you go two Magical Realms deep (i.e., sheer horror).
- Magical Realm CYOA, a popular CYOA that can be overlapped with the /tg/ meaning of "Magical Realm", but also can just be taken in a non-sexualised direction.