In RPGs, I think the magic item exists somewhere between those two extremes. They are the spoils of battle, rewards for great role-playing, for impossible feats of skill. They either make your character more, or open new paths for them to walk.
For my part, I try to never put out a magic weapon that doesn’t have a name. At the very least, it has to look different – even a plain +1 longsword gets more exciting when it’s called Gnollbreaker, or is described as being made of water.
I’m always trying to get at the feeling that a magic item should have a sense of wonder, a feeling of coolness. Even when they fit nicelyinto a “slot,” it shouldn’t just feel like it’s part of a build.
One of the things I like about the common magic items, is that they don’t really do anything other than feel wondrous.
You touch upon an interesting side to this discussion, which is the way magic items can help with the world building. Magic items can be more than just a loot reward or a helpful tool, they can have a name and even a backstory. And sometimes this can help with a little bit of lore exposition. A good example is the game Dark Souls, which uses item descriptions to do most of the story telling.
Not so long ago my players stumbled upon a ruined pirate fortress, and searched for treasure. I figured that a magic item would be a good reward for their troubles, so I rolled randomly for a magic item on the magic item table. It was a blessed +3 spear that did cold damage. Now in the story this didn't make a whole lot of sense; they were on a tropical island, and its original inhabitants were quite evil.
But through this item I was able to convey the story to my players of how the original inhabitants of the island were deceived by evil angelic beings, believing they were messengers of the gods. The players discovered through a prophetic dream that the spear had been stolen from the elves, whose palace had been turned to ice, and then brought before the people of the island as a holy gift. Since the item radiated good, the local priests believed the angelic beings must be good as well... and those that didn't believe them... well lets just say there was a rather violent civil war on the island, and many of the nonbelievers were executed.
And all this because of a random magic item.
The random magic item made me think where it came from. And it was the catalyst for further developing how my big bad spreads its influence over the world. I should explain that my big bad is an evil aquatic godlike being that has taken control over the realm of the dead. Or at least, the part of the realm of the dead where those killed at sea go. In the process of taking control of it, he has covered this realm in ice. But because this big bad cannot directly interact with the mortal world (the established pantheon of gods would obliterate him instantly) he sends servants to spread his vile influence.
The limits that I've placed on his powers provide a good excuse why he can't fight the heroes directly (which wouldn't be a fair nor interesting fight). But because I already thought of this whole backstory, it made sense that the spear got its cold-damage powers from this nether realm. Two of my players also took this as a personal insult to the heritage of their characters, and it made them hate the big bad even more. It even prompted discussion of perhaps reclaiming the elven palace that the big bad's minions had plundered, to possibly weaken the big bad indirectly. A pretty good plan, that lends itself perfectly for future adventures (dungeon crawls and the like).
To me telling a story in D&D is a matter of planting a lot of seeds. And magic items are but one way to plant a seed for the story. They can be part of a greater story, or provide a plot hook. In this case, the magic spear planted story seeds for:
-stolen elvish treasures.
-the corruption of the island, and a hint to what happened to the islanders.
-the limits of the big bad's influence.
-foreshadowing of angelic beings, which are scary monsters that the players have yet to encounter.