They are exactly what the name suggest: platforms of consoles that don't actually exist, but simulate the limitations of older hardware (usually 16-bit consoles of the NES era) and are made to be easy to publish, share and play games made for them. It's the prime example of a "creative limitation": you set up yourself with the limitations of a Fantasy Console, which helps driving your creativity and problem solving to create a fun game. Most Fantasy Consoles are even all-inclusive with sprite, music and script editors, so you won't need to have any other tool - just time, energy and creativity to spare on your game.
Pico-8 is by far the most popular Fantasy Console, a fantastic Game Engine that was often the first prototype of successful indie games, received many demakes of existing games, or is just used as-is to launch amazing games.
It's not free, which is totally fair. For only $15.00 bucks (at the time of this article), you have access to an amazing tool, but more importantly, the same tool of an amazing community of creators. Just search for "Pico 8 tutorial" on Youtube and you'll see what I mean - it's trending since 2015, and it's still getting more popular every day.
But you might not be convinced it's the tool for you. Maybe you prefer using an Open-Source Game Engine, maybe you want a Fantasy Console that gives you more freedom, or maybe you just want to spin a Fantasy Console for a ride before commiting on buying Pico-8. Whatever the reason, the following list might help you out choosing a good alternative for Pico-8. The following criteria have been met for all Fantasy Consoles on the list:
TIC-80 is a fully-featured Fantasy Console with built-in tools for code, sprites, maps and sound. Many of its games are available directly from their website, and you can even test TIC-80 directly from your browser. TIC-80 also supports multiple programming languages, from the popular Lua, Javascript and Python, to more niche scripting languages such as Squirrel and Janet. TIC-80 is one of the closest experiece from PICO-8 that you can have.
There is an option to buy a PRO edition of TIC-80 to help out development (with extra "memory banks" to ease out the Fantasy Console memory limitations and the ability to publish games to app stores), but you can very easily build the PRO version yourself using TIC-80 source-code (there are clear instructions for that, although if you liked the project, spending $10.00 might help TIC-80 development a lot).
MEG-4 is a Fantasy Console with a focus on being more performatic than PICO-8 and TIC-80. It features the usual editors (code, sprite, map, font, sound, music tracks), but since it goes a bit lower level than other Fantasy Consoles, it's also packed with a memory overlay viewer and debugger. You can program games on MEG-4 with C, BASIC, Assembly and Lua.
Performance is arguably not the focus of most Fantasy Console users (you might as well develop your game on top of other frameworks instead of using a Fantasy Console), but MEG-4 is an interesting choice if you want to stretch your C muscles (forget Fantasy Consoles, there are few to none Game Engines that use C as an easy-to-implement scripting language) or just want to have some fun programming a game closer to metal but without the many headaches of working without a Fantasy Console.
If you love python, chances are high that you'll love Pyxel too. It is a Fantasy Console that leans much more to the simpler side (although still featuring the usual sprite/sound/tile editors), but unlike the other multi-lingual Fantasy Consoles, it's Python only - and rightly so, because it's Python API is clean, very easy to understand, and very fun to work with (a bit of author bias though!).
WASM-4 is a minimalistic Fantasy Console, with a simpler set of editor features and "console limitations" than most (only a 160x160 screen and 4 colors to use), but with an interesting programming approach: instead of targeting a single language, WASM-4 targets the WebAssembly VM as the Fantasy Console engine, which means any Language that compiles to WASM (Rust, C, Python) can be used to make a game for WASM-4. If you don't know what WebAssembly is, using WASM-4 is a great opportunity to learn a little bit more about it, since WebAssembly it's the main target of most modern Game Engines that export to Web. That also means that WASM-4 has an amazing web compatibility, even featuring multiplayer support with rollback netcode.
OCTO-8 is a special entry on this list because it's probably the most accurate definition of a "Fantasy Console": it targets a CHIP-8 virtual machine, but it extends it using the "SuperChip" and "XO-Chip" extensions (a set of extended CHIP-8 instructions). The CHIP-8 is a real interpreted programming language developed around the BASIC time, so programming with OCTO-8 will be a tad bit more hardcore than the other Fantasy Consoles, specially after considering you won't have the editor tools facilities. But if programming on a real old-school VM strikes your fancies, OCTO-8 is the Fantasy Console for you.