Reality is important to any fantasy.
Especially cinematic fantasy.
Even if reality is nothing more than a concept that serves as a frame of reference, convincing audiences of the story's plausibility.
"Star Wars"(1977) was a space fantasy. And yet it was praised for being "realistic." Even though we know there is no sound in the vacuum of space.
But the point is that it convinced audiences of its being real, or nearly close to reality.
The film noirs of the '30s and '40s, as mentioned before, were also praised for their realism, yet many of these movies were directed by German directors like Fritz Lang ("Metropolis," "M") who cut their teeth in German Expressionism -- an aesthetic style having almost nothing to do with physical reality.
|German Master Fritz Lang|
"The Killers" (1946) directed by German émigré Robert Siodmak.
"The Big Heat" (1953) directed by German émigré Fritz Lang.
Having worked in the German film industry for UFA, the Master of Suspense himself, Alfred Hitchcock, was praised for making films that seemed to embody psychological realism -- an approach influenced by German Expressionism as well. Hitchcock's movies are highly stylized, and we can agree that not everyone experiences reality in the exact manner Hitchcock portrays it.
|Mission San Juan Baptisa from Hitchcock's "Vertigo" (1958)|
|Matte painting from "North by Northwest" (1959)|
|The death of Detective Arbogast in Hitchcock's "Psycho" (1960)|
So we can see that realism isn't easily defined. Nor is it restricted to material reality, but it can also apply, as in the case of "Star Wars," to fantasy, or, in the case of Hitchcock's work, to psychology (which is the interplay of both reality and fantasy).
Still, we haven't answered the question of how?