FMVs...those are game cutscenes with real people or am I getting that confused with something else?

You've got the gist of it, though it isn't necessarily limited to the use of real people (Dragon's Lair, Space Ace and Time Girl qualify as FMV games). Generally, it refers to any use of video playback by a game, as opposed to game engine-rendered images (which most cutscenes use now, and many did prior to CD-ROM). Cutscenes in Final Fantasy VII, for example, are technically FMVs.

But when most gamers bring up FMV, they're referring to the early CD-ROM trend of filling up space on a disc with obnoxious acting with the hope of banking on the novelty of "interactive movies". The Wikipedia page for FMV in video games specifically brands this particular definition on it.

Agreed, I remember being disappointed when I got Rebel Assault 2 at first because I had thought it was another Tie Fighter-like game (I hadn't heard of Rebel Assault I, so that was a massive disappointment). But after I got over that, for what it was, Rebel Assault 2 was enjoyable enough as a casual game. I'd have to think long and hard about purchasing again (if it could be done) - it would have to be dirt cheap and I'd have to be feeling particularly nostalgic, but I had fun with the game as a kid.

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From my remembrance, FMV games, where FMV was part of the gameplay, were, in general, either the casual games for their era or a continuation of the point and click adventure which as whole plummeted in popularity during the late-90's/early 2000's.

As for live action cutscenes, with in-game engine rendered scenes one doesn't have to film anything with actors who are being paid for more than just their voices with sets one had to physically build. And one can make an argument for immersion or for showing off the quality of the in-game engine. Even animated cinematics (not live-action and not created with the in-game engine) are also, naturally, more expensive than their in-game engine counterparts.

But they could all be a lot of fun - even if it was of the campy variety. :) So I'd agree with the OP that there is certainly something to be missed. I don't know if it is nostalgia for some of the cheesy live-action cutscenes or the FMV point and click adventure or even the odd FMV casual game, but if there is nostalgia, there is something that is missed. :)