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Limitations are the foundation of any good game. Iterating on those limits is what turns your good game into a great game.
If you are building a house, you need a good foundation. Games are similar, except that instead of using concrete you use limits. What do I mean by limits? I mean things like how many lives a player has, how difficult enemies are, how many shots you get in your weapon, how much ammo can be found, etc. There are multitudes of limits, and just like Goldilocks, you need a 'just right' number of them in your game. Too few limits in your game and it will be too easy - too many limits in your game and it will be too difficult.
For example, imagine a game that allowed you to kill any enemy with a single shot and that you had unlimited ammo. It would make for a pretty boring game, would it not? So how does a game designer come up with the Goldilocks number? Experience helps. Knowing your market helps. The biggest help though is iteration. Create the game you want to make, with the limits you think should be imposed. Now iterate. And iterate some more. Then iterate again. Keep in mind the limits you want but be flexible.
Game developers are always up against the clock. There is barely enough time just to get the coding, artwork, and assets finished and now you are telling them they must play their game and tweak it. A lot. Then tweak it some more. If you want a better game then you will do this. If you want a great game, you will do this a lot.
The more iteration done to a game, to tweak the limits of the game - the better. Id Software have always said they would only release a game 'When it's done'. They know how to make a good game, how to iterate, and what the perfect limitations are. Blizzard also used to have this saying and they make pretty damn good games.
Blizzard has large teams and they spend a lot of money, but they create quality products because of their dedication to iteration. World of Warcraft has changed quite a bit since it was released in 2004. Some would say that the game has been 'dumbed down' and is too easy. Gamers have been saying that about any long running game, especially when it comes to MMO's. However, Blizzard knows their audience and their market. They know that what gamers want changes over time - the market is never static, and it never will be.
Knowing the proper limitations for your game and what the market demands is a good foundation and a good start. Achieving the 'Goldilocks' zone of 'just right' is the key to a great game.
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