Created by Rick Dyer of Advanced Microcomputer Systems (AMS) and released in June 1983, Dragon's Lair was the first of the much-reviled "interactive movie" genre. This genre basically consisted of playing a video clip (which at that time was stored on a laserdisc), then requiring the player to press a button at a particular time or the character would "die". Whether or not this particularly qualifies as a "game" is a matter of personal opinion, but the punters were obviously impressed and the machine was a roaring success. The game was also groundbreaking since it utilised exisitng technology (laserdisc players, arcade machines) for commerical purposes, minimising the amount of R&D required for game development.
The plot followed Dirk The Daring's valiant quest to save the fair Princess Daphne from a magical castle in which she was imprisoned. A whole line of merchandise was created including lunch boxes, clothing, a fan club and an ABC TV series. The 22 minutes of animation used in the game was created by the famous Don Bluth1 at a reported cost of US$1.3 million.
The "interactive movie" genre thankfully died out a couple of years later when gamers started buying games with more gameplay (even games that used interactive CG graphics displayed over full-motion video footage weren't enough to keep the genre alive). Dragon's Lair also spawned such games as Space Ace (not Space Ace - cheers, Rollo), Astron Belt and Bega's Battle.
Laser Disc Legend (an article about Dragon's Lair) - http://www.dragons-lair-project.com/community/legend/
Dragon's Lair Project - http://www.dragons-lair-project.com
1. Thanks to yerricde for correcting that mistake. Originally, his name was spelled "Bleuth" and not "Bluth".