Cel-Shading is a recently popularized form of graphics arts. Cel-Shading has been used in the animation field probably years before it was a possibility in the video game field. In fact, a lot of the modern day Japanese animation is cel-shaded at some point or another (such as a 360 spin scene where it's hard to draw each angle of a character).
Cel-Shading in the video game industry has only appeared in a few non-animation based games, such as Jet Grind Radio, Rez, and The Legend of Zelda: Wind Waker. There are two advantages to Cel-Shading:
1. Better FPS. A lot of the time there's a lack of complex texture. Though the lighting is very stressed, the GPU doesn't have to process a lot of high VRAM using textures.
2. More of a animated look. For cases when you want a cartoon looking scene rather than a realistic one, and when flat shading just doesn't look right.
The Naruto series games for PS2 are cel-shaded