Blockbuster AAA games need a lot of development time. The ones being published now one, take on average between 4 and 6 years. In some cases a bit more or a bit less.
This means that games being released now started to be developed in 2018 or before, when back then they didn't know the specs of the new generation, didn't have devkits to make games for next gen and didn't have game engines to take advantage of the new technology.
This means most current AAA games, specially 3rd party ones and those who don't release brand new games super fast, release games in next gen (crossgen or not) that were originally made for previous gen and simply added some minor extra stuff for next gen like DualSense features, some RT, extra resolution, polygons, texture resolution and stuff like that. I mean, these next gen only games could be released as crossgen or if some crossgen games would be next gen only wouldn't be that different.
As Mark Cerny said in his PS5 tech presentation, and as we saw with the Unreal Engine 5 demos, or as Phil Spencer mentioned this generation has a tech that allows many key changes way bigger than in previous generations since the jump from 2D to 3D. To the point these changes will mean major changes in game engines and gamedev tools and the way artists, game designers, level designers and programmers do their job.
These major changes will need a lot first to develop these game engines and tools. First complete version of UE5 was recently released this year and until now it's the only game engine that achieved them. Once these engines and tools are ready, devs have to learn to take advantage of them, to make a ton of prototyping and testing to realize what they really can do with them, then to realize what is the new best way to work with them, set new guidelines and best practices and workflow for art, design (specially game design), game engine programming, game programming, production, art outsourcing or testing.
And then after that, the development of the game itself, which will have a ton more of work more than before but in other things. In the past they did lose a ton of time on making tricks to add fake detail or lighting and shadowing. Now they'll have way more realistic stuff, which is more difficult to do. May the game design or level design. And will allow more environment destruction or densely populated environments.
When talking about teams that involve hundreds or thousands of people, small changes take a lot of time and big changes take way more. In a year or two we'll see the first games released using the new stuff of UE5 or other engines but not taking full advantage of them. A couple of years later, close to the release of the next gen we'll start to see the first games taking full advantage of the current hardware, something that will carry to the next gen because this stuff will be scalable.
In the current generation we'll see basically photorealism in many scenes, and in the next gen I assume they'll go a step beyond in the real time lighting, shadowing and reflections basically achieving photorrealism in some areas that won't look that perfect in the current gen. I assume they'll go a step beyond in motion capture and CPU based animation (physics etc) to solve uncanny valley scenarios.
P.S.: Obviously this and next gen we'll continue also getting pixel art games, cartoony games and tons of styles that aren't ultrarealistic stuff.
.. we aint struggling to render 3 playable characters anymore lol
