I don't think they're talking about a physical 'product'. They're talking about building character, making themself a better person, learning a skill etc
If it's all about perceived self-improvement with no consideration for real-world applications or end products, there's no difference between practical skills and virtual ones. All that matters is that the person in question believes the experience to be valuable.
EDIT: I guess it's worth mentioning a minor exception for basic life skills that some people do as hobbies, like sewing, gardening, DIY or cooking, but those have diminishing returns. You can probably learn everything you need to know to not be reliant on tradesmen or vendors for those sorts of things in a year, and beyond that you get stuck in the same place as the hobby craftsman or hobby artist, where the chance of real financial success is basically nil so you're just doing it because it's an activity you personally enjoy.
But where I’m getting tripped up: today I smoked out of a glass pipe I made. I can’t smoke out of my level 80 night elf druid.
Nor can I combine my level 80 night elf druid with my Diamond IV rank in Halo to get a compounded return. Those two games and skills are isolated. But I can combine what I read in John Dalton’s A New System of Chemical Philosophy with glass blowing to make interesting things that bring me joy (I.e. replicating experiments of John’s at home with purpose built glassware)
It’s not just production for productions sake, or production for the sake of society. It’s increasing my capacity to produce for myself. I feel like I’ve grown in a way that I can build on tomorrow after a session of practicing this class of hobby.
Maybe the distinction truly is arbitrary - but something about this path feels significantly more fulfilling the further down it I go vs. the literal years I spent in virtual worlds. In the virtual worlds the potential felt roughly constant while these hobbies feel like they have an ever expanding horizon of potential.
MMOs and competitive online shooters aren't time-efficient games. They're live service games that are essentially built to be time-sinks. People who regret playing them do so because the regret is real. There's a lot of advanced psychology that's gone into ensuring that people play them for as long as possible. This leads to people playing the games long after they've stopped having fun, and only quitting when they realise they've not been having fun for months, possibly years.
But this isn't a problem specific to games; this is a problem with predatory marketing. If you'd instead spent that time playing a wide variety of shorter experiences without grindy filler, I wonder if you'd feel the same way. Maybe niche hobbies don't have the attention of same predatory actors because there's not the incentive for them to do so, but that's not an argument for productivity, that's just an argument for obscurity.
That's as may be, and especially true if you're playing them solo, but playing coop games online with friends, even "inefficient" ones are enjoyable social experiences that can be done even without being co-located, which isn't something that's easy to substitute with other activities.
I play games with friends and coworkers online that I wouldn't otherwise interact with much, and it helps us stay in touch with each other and foster a relationship that would likely otherwise burn out.
If I was playing the games alone, I'd maybe regret it over playing a different and "better" game, but I'd rather do inefficient things with friends than efficient things alone a lot of the time.