Well, I could probably use up all of the bandwidth on this server discussing the nature of time, and still not have a clear understanding of something so intangible! Let's just agree that time is a measure of existence. Cool? To waste is to consume, spend, or employ uselessly or without adequate return; use to no avail or profit; squander, as defined by dictionary.com.
With those definitions in hand one could conclude that to waste time is to spend or squander one's existence uselessly. With me so far? (I'm not sure that I am, but never mind.) Any way you slice this little intellectual nugget you are going to end up having to make a judgement call. Our judgements are based on many things, but a large factor in judgement making is what society as a whole deems acceptable or unacceptable. And the accepted judgement in Western society is that playing video games is a waste of valuable time, and reading a book is not. Oh, people are going to put qualifiers on that statement for sure, and they would be right to do so. Too often people are quick to rope things (or people) into categories, and this gets us into trouble fairly often.
Video games run the gamut from Tetris to Ninja Hamster. Many video games have very little in common besides being video games. Video games are used to test and train pilots and astronauts. They are commonly used to teach and facilitate speech between higher primates. Video games like the various incarnations of the Leap Frog are used as educational aids for children. Video games have also recently entered previously undiscovered territory in the fitness arena. Nintendo's Wii console has been credited, since its release in late 2006, with getting children, teens, and adults alike off of the couch and even losing some pounds in some cases. While you're not going to get in tip top shape from only playing video games, according to a study by the Research Institute for Sport and Exercise Sciences at John Moores University in Liverpool, you can expect to burn more calories playing Wii Sports than you would sitting on your rump playing Halo on the X Box 360.
This is not, however, the rule, but the exception to the rule. One must also consider the often lamented other side of the video gaming industry: Halo, Doom, Everquest, and Second Life have all been controversial for their ability to draw players in and hold their attentions for hours at a time. Is there any value to these games, other than the entertainment value? At last, it seems we have found the source of the social declaration that video games are a waste of time.
From the outside looking in, it seems as though these games offer nothing except an escape from reality. And a lengthy one at that. The notion of the 35 year old man-child wasting his days away in his parent's basement playing War Hammer is universally understood in popular culture. Everyone knows that guy. The truth is, there will always be those kinds of people. People use all manner of things for escape from reality. Video games are just one of many.
On the other side of the coin though, reading takes me to places I have never been. It teaches me things that I might never have learned through experience. Most importantly, after reading a book, I am smarter for it. Be it Stephen King's atrocious Pet Sematary, Michael Crichton's Airframe, or George Orwell's Nineteen Eighty-four; in every case I came away from those books with knowledge that I did not previously possess. There are many things in this world that can have value attached to them. One can acquire money, and with that material things. One can buy land, power, influence. The thing that holds the highest value for me I can get from a book, and no one can ever take it away from me. That thing is knowledge.
Reading will always be more valuable to me than playing video games. But I think the adage "All things in moderation" is the best way to look at something like this. Anything can be used as a way to escape from one's reality. People escape into movies, drugs, collecting beanie babies, music, and so on. This list is unfathomably long. The one thing I kept coming back to when considering this topic is the question: Do video games or books prevent a person from being a productive member of society? The answer to this question, simple as it seems, is always going to be relative to the personality of the individual.
In the final analysis, I think it is prudent to be hesitant to judge another's desired mode of entertainment. In the end, it is the choice of the individual. How you "waste" your time is really none of my business.