Having read a transcript of the arguments from the Supreme Court case today, I can provide some insight. This is what the sides are arguing.
California: "Violent video games are obscene and can be damaging to a child's development. Therefore, we want the state to make it illegal to sell violent video games to children. We don't care if parents choose to purchase them for their children, but it shouldn't be legal for them to buy it for themselves."
Opponents: "There is no scientific consensus that shows that violent video games are damaging to development. Furthermore, even the few studies that conclude it might be agree that all forms of violent media -- even something as simple as bugs bunny -- are equally as damaging. Since the introduction of video games to our society, violent crime has decreased drastically -- if video games were a source of actual harm, wouldn't that have trended the other way? Furthermore, parental controls exist for a reason. Why legislate something into law that already has a non-legal fix?"
There's a few problems with both points of view.
1) The science isn't conclusive either way and probably won't be anytime soon. There's too much methodological bias.
2) There is no crisis here, so the law is intending to fix something that isn't there.
3) Parental controls can be circumvented by most teens with ease.
What I took from all of this is California's law is dangerous because:
1) It's vague. Rather than using the ESRB's rating system to prohibit the sale of M rated games, California wants the judgment made in some other way. They are trying to render the ESRB impotent, work around it, and ultimately destroy it because opponents of video games want a non-voluntary rating system.
2) It's a step towards censorship, because they're setting up government framework of judging these artistic works on whether they are obscene, art, and then the level of vulgarity in them. Based on that judgment, individual games will then face more legal challenges, scrutiny, and protection.
If the law was simply "no retailer may sell an M rated game to anyone without checking their ID and making sure they are over 18" that would be fine with me too. The problem is, there are ridiculous penalties attached to this that can punish both the companies who sell these games and the developers of the game. These fines can reach atrociously high numbers. Larger publishers will be afraid to distribute games which could potentially result in law suits and problems for this exact reason -- thus the chilling effect of free speech in video games.
As long as lawmakers are hostile towards the industry and the ESRB, they can't be trusted to create a fair system that actually works to keep kids away from these games while protecting the interests of the industry itself and its loyal consumer base.