Sim racing is the collective term for racing games that attempt to accurately simulate auto racing, complete with real-world variables such as fuel usage, damage, tire wear and grip, and suspension settings. To be competitive in sim racing, a driver must understand all aspects of car handling that make real-world racing so difficult, such as threshold braking, how to maintain control of a car as the tires lose traction, and how properly to enter and exit a turn without sacrificing speed. It is this level of difficulty that distinguishes sim racing from arcade racing-style driving games where real-world variables are taken out of the equation and the principal objective is to create a sense of speed as opposed to a sense of realism like the Need for Speed series.

Due to the complexity and demands of mimicking real-life driving, racing sims require faster computers to run effectively, as well as a steering wheel and pedals for the throttle and brakes for the immersion. While using a gamepad or even a mouse and keyboard, may suffice for most arcade-style driving games on home systems, it would not provide the same level of immersion and realism as using a racing wheel and pedals. In recent years, many sim racing experiences have been developed for consoles, such as the PlayStation and Xbox. While these games can be played with a controller, it is recommended that players invest in a racing wheel and pedals. With the development of online racing, the ability to drive against human opponents and computer AI offline is the closest many would come to driving cars on a real track. Even those who race in real-world competition use simulations for practice or for entertainment. With continued development of the physics engine software that forms the basis of these sims, as well as improved hardware (providing tactile feedback), the experience has become more realistic.

The sim racing gameplay style has been applied in several video games, such as iRacing, Assetto Corsa and Assetto Corsa Competizione, Gran Turismo, Forza Motorsport, and more.

Prior to the division between arcade-style racing and sim racing, the earliest attempts at providing driving simulation experiences were arcade racing video games, dating back to Pole Position, a 1982 arcade game developed by Namco, which the game's publisher Atari publicized for its "unbelievable driving realism" in providing a Formula 1 experience behind a racing wheel at the time. It featured other AI cars to race against, crashes caused by collisions with other vehicles and roadside signs, and introduced a qualifying lap concept where the player needs to complete a time trial before they can compete in Grand Prix races. It also pioneered the third-person rear-view perspective used in most racing games since then, with the track's vanishing point swaying side to side as the player approaches corners, accurately simulating forward movement into the distance. In a 2007 retrospective review, Eurogamer called it "a simulation down to the core: those dedicated will eventually reap success but most will be deterred by the difficulty".

Pole Position II was released in 1983 and featured several improvements like giving the player the choice of different race courses. TX-1, developed by Tatsumi in 1983, was licensed to Namco, who in turn licensed it to Atari in America, thus the game is considered a successor to Pole Position II. TX-1, however, placed a greater emphasis on realism, with details such as forcing players to brake or downshift the gear during corners to avoid the risk of losing control, and let go of the accelerator when going into a skid in order to regain control of the steering. It also used force feedback technology, which caused the steering wheel to vibrate, and the game also featured a unique three-screen arcade display for a more three-dimensional perspective of the track. It also introduced nonlinear gameplay by allowing players to choose which path to drive through after each checkpoint, eventually leading to one of eight possible final destinations.

Since the mid-1980s, it became a trend for arcade racing games to use hydraulic motion simulator arcade cabinets. The trend was sparked by Sega's "taikan" games, with "taikan" meaning "body sensation" in Japanese. The "taikan" trend began when Yu Suzuki's team at Sega (later known as Sega AM2) developed Hang-On (1985), a racing video game where the player sits on and moves a motorbike replica to control the in-game actions. Hang-On was a popular Grand Prix style rear-view motorbike racer, was considered the first full-body-experience video game, and was regarded as the first motorbike simulator for its realism at the time, in both the handling of the player's motorbike and the AI of the computer-controlled motorcyclists. It used force feedback technology and was also one of the first arcade games to use 16-bit graphics and Sega's "Super Scaler" technology that allowed pseudo-3D sprite-scaling at high frame rates. Suzuki's team at Sega followed it with hydraulic motion simulator cabinets for later racing games, such as Out Run in 1986.

In 1986, Konami released WEC Le Mans, an early car driving simulator based on the 24 Hours of Le Mans. It attempted to realistically simulate car driving, with the car jumping up and down, turning back and forth, and spinning up to 180 degrees, with an emphasis on acceleration, braking, and gear shifting, along with the need for counter-steering to avoid spin-outs. It also featured a day-night cycle, accurately simulated courses approved by the Automobile Club de l'Ouest, and force feedback to simulate road vibration in the form of a vibrating steering wheel that reacts to the driver's acceleration and off-road bumps. The first racing game with simulation pretensions on a home system is believed to have been Chequered Flag, released by Psion on the 8-bit ZX Spectrum in 1983. REVS, followed in 1986. REVS was a Formula 3 sim that delivered a semi-realistic driving experience by Geoff Crammond that ran on the Commodore 64 and BBC. REVS had a big fan base in England, but not so much in the United States.

3D polygon graphics appeared in arcade racing simulators with Namco's Winning Run (1988) and Atari's Hard Drivin' (1989), the latter also becoming a staple on home computers, where it was one of the most widely played simulators up to that point. During the late 1980s to early 1990s, arcade racing games such as Out Run and Virtua Racing (1992) had increasingly elaborate, hydraulic motion simulator arcade cabinets, with arcade racers such as Virtua Racing and Daytona USA (1993) increasingly focused on simulating the speed and thrills of racing. At the same time, arcade racing games gradually moved away from the more difficult simulation style of Pole Position. By the early 1990s, arcade racing games had less emphasis on realistic handling or physics, and more emphasis on fast-paced action, speed and thrills.