The students are shown playing a fictional arcade game they call 'Margolis.' But the actual game footage being shown is from the Intellivision home console game "Advanced Dungeons and Dragons."
The obsession of the college students with the Wizards and Warlocks game may seem silly, but it reflected a real issue at the time, when the game Dungeons and Dragons was big on college campuses. The were media reports of how students spent so much time playing it their grades suffered, even to the point of flunking out. One of Tom Hanks earlier roles was in Mazes and Monsters (1982) where he played an obsessed student.
The title Wizards and Warlocks is a riff on the mega popular game at the time, Dungeons and Dragons.