Lets look at some more video game innovation from Sega, while were at it, lets talk Jet Set Radio.

Jet Set Radio is about a graffiti gang known as the GGs, who set about painting the city of Tokyo-to in their graffiti art while fighting rival gangs and the police. You complete missions set to a time limit very much like Crazy Taxi crossed with Tony Hawk's Pro Skater; all actions are performed on inline skates set to the most colorful backgrounds possible along with some epic street music; although not the first game to use cel shading but it was certainly the game that popularized it.
If you've heard Jet Set Radio's plot before then it's very similar to the anime Air Gear, the only difference is that Air Gear relies more on heart of fighting and fan service while Jet Set Radio keeps to it's street roots and came before Air Gear.
Oh and the name Jet Set Radio refers to the in-game Radio Station for a bit of trivia.
Now to describe Cel Shading. Cel Shading is where you take a 3D Graphic computer image and render it to appear flat as if to look like a cartoon.
As for it's overall use in video games in general, it's the type of graphics that goes in and out of fashion; no triple A title would dare use it but best selling franchises, most prominently Legend of Zelda Wind Waker and even Skyward Sword used it to great effect.
While it may not be the most popular choice for video game graphics, but it is necessary for most modern anime video games to use cel shading.
Sega seems to popularize things without even trying and cel shading is yet something else they can add to their innovation list.