Q: How videogames handle time?
A: They take away all of mine.

Yep, a game made to waste the player's time. (There are some Mario Maker 2 troll levels that do this, like Bean Burrito 2, where you have to perform some repetitive action for most of the 500 seconds, but you still have to pay attention, and then there's sometimes a troll at the end.)

I'm a big fan of milestone time skips. By the time you reach certain story events, a certain amount of time has already passed in the game. Your experience along the way was just a condensed version of that time spent for your characters. For example in FF9, widely considered to have excellent pacing, [link with story spoilers] the events occur over the course of 3 months, though the characters don't really take a break. You're welcome to slaughter 0-1000+ random encounter enemies between the town and the next dungeon, but only 1-2 days have past in that time.

This also works for sizeable worlds too. When you enter a big city or area, a lot of the environment design can be part of the background as buildings, urban landscape, terrain, etc. to give the impression of being in a big world. Wouldn't hurt to some extra bloat here for exposition and worldbuilding, but really no need to have a couple dozen NPC buildings when only the shop, inn, and two houses regarding sidequests are only relevant things to do in a town. FF13-2's Academia is a good example of a huge city with nothing much to do in it. Meanwhile, FF7's Midgar or FF10's Luca has the right balance between key locations and bloat for its town designs.

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Regarding time limits, FF13-3 also does it Majora's Mask style with the in-game timer of 13 days where 1 day in the game = 60 minutes IRL. The same concept is also seen in XCOM 2 with turn limits. SC2 LOTV also had soft time limits in many of its campaigns since failing to fast expand meant you ran out of resources early in your main and couldn't stop the computer's unlimited constant attack waves. All of this is absolutely dreadful for slow players.

As advocated by GMT and its case examples, it's always better received by players to reward them for riskier behaviour than to punish them for playing slowly. Rewards can include achievements, grades, better equipment, extra stats/skills, etc. You can also dissuade playstyles by limiting the unintended playstyle with weaker damage or limited uses of that action instead of downright demanding that they conform to one style only. This balance still gives the player freedom to play however they want while also allowing gamedevs to push for the canon way of playing parts of their game.

Here's how some of the SaGa games handle time:
* SaGa 3: There's time travel. The world is flooding, so the water level is higher in the future and lower in the past. I believe the eras are 15 years apart, so the difference between past and future is only 30. Note that time doesn't pass in the alternate dimension, so time travel disappears in the entire later part of the game. (Chrono Trigger takes the time travel idea much further than SaGa 3 does.)
* Romancing SaGa 1: Time passes with each battle. Fight enough battles and the Event Rank (ER) increases; when this happen, things change, some quests close, and other quests open. ER is capped at 22, and the final quests requrie ER 20. (In the PS2 remake, the mechanic is a bit more complicated, with harder battles counting more.)
* Romancing SaGa 2: (Disclaimer: I haven't played this game.) There are certain "black screen" events. If you've cleared enough of them and/or fought enough battles, and you aren't on the final emperor/empress yet, a generation shift will occur; years pass, you get to choose a new emperor, and the emperor will inherit the abilities of the previous one. Furthermore, research will complete, and the arts learned in the previous generation can be easily taught to new characters.
* SaGa Frontier 2: The game consists of a bunch of events that appear on the world map. Choose an event, play through it, and you are returned to the map to choose another one, with new events opening up as you clear them. The events take place at different times in the world's history, ranging from 1220 to 1306. As characters get older, their stats change. (Note that it is possible to play events out of order; you might play an event where someone plot dies, and then follow up with an earlier event in which that character is still alive.)


Works find until you look at one particular part in Dragon Quest 5, where a character, in what feels like too short a time, gets married, gets pregnant, and then gives birth.

Incidentally, Dragon Quest 5 does have two major time skips during the game, where many years pass (think the first one is a full decade), and the first one has your character growing up during that time, albeit not in nice living conditions.

Phantasy Star 3 also has some time skips, where you marry someone, and then play as that character's son.

I hear Fire Emblem 4 also has a big time skip, and apparently modern FE games may do some of that as well.