What makes retro graphics appealing is intent
You can draw a parallel between the evolution video game graphics, and the transition from drawing to photography.
In short, before being an art form, drawing was a way to represent reality, and photography made that purpose way more effective.
You can see the same trajectory with video game graphics, that were primary made to imitate reality, and as technology evolved, that has never been easier. Pretty much anyone can run Unreal or Unity, pick some photo-real assets on the store, put some lights and create a somewhat realistic scene (and yes, that's big shortcut, because someone actually had to create these assets, but you get the idea).
So I was thinking about what made "retro" graphics so appealing for some people, and nostalgia probably plays a big part, but I don't think it's the main factor.
If I reuse my drawing/photography analogy, if I have to capture a random scene, I could either painstakingly pain it, or photograph it.
Obviously photography can be an art form, you can spend a lot of time choosing a specific lens, framing the picture, arranging the scene, placing some additional lights, and even modifying the picture afterwards.
But you also can just pick your smartphone, vaguely aim at the object, press a button and voilà, and it would be good enough in a lot of case.
Whereas you can't "cheat" with a painting, to get an accurate result you have to put efforts in. But more importantly, you have to put intent in every-line, every splash of colour. Not a single drop of paint would be placed randomly, it's there because the creator wanted it to be there.
If given the choice between a dull photo of a random street, and the same scene painted by a not very talented painter, I guess most people would still find the painting more interesting, because at least the personality of the painter is shining trough.
It's the same thing with "retro" graphics, when you didn't had real time dynamic lighting, real time physics and so on, you had to fake everything by hand. And so the way every single object was lit was made with specific intent. Maybe it was made to look more real, but maybe what the dev thought was realistic was not, or maybe the dev just thought it was cool, whatever the reason, they have to put actual thought into it.
Of course this can still be present in modern games, even with a realistic graphic engine you can fake some effects to get more dramatic results, it's what separate an interesting looking game from a store asset flip shovelware that may be photo-real, but also completely flat and lifeless.
But again with "retro" graphics you can't cheat it, you have to actually think for every small detail, so by default it gives more life and personality to every single details.