"System" includes the manner in which tasks are resolved, character creation (even the character sheet), terminology. . . all of it. It's quite impossible for the system to fade into the background without discarding system altogether. To illustrate, here's an example from Amber Diceless Roleplaying, which has one of the least intrusive mechanical architectures I've ever encountered. Player characters are ranked in four attributes (Psyche, Warfare, Strength, Endurance.) Higher rank always wins. Your character's rank in Warfare is part of the system. I realize that it might be said that using a description such as "Flynn is second to none in the arts of war!" is effectively fading that system into the background, but I disagree. It's still in the player's mind that Flynn-the-character is ranked first in Warfare. And there's nothing wrong with that.
What most are trying to say is that they want transparent mechanics. They don't want to have to stop, pull themselves out of the game, and figure out how to accomplish what they want to accomplish. Most games created these days certainly try to make their mechanics as transparent as possible. The issue of "fading into the background" comes into play when the players (and I include the Dungeon Master or whatever he or she may be called in the particular game) are either comfortable or uncomfortable with the game and its system. Some players are very comfortable with a heavy dose of mechanics. For instance, I've known a player that feels HERO System fades into the background. I've known others that feel anything more involved than Wushu's mechanics are far too apparent. It's a completely personal judgement
Personally, I'm fond of emulation, which requires a heavy layer of apparent system; however, I also enjoy task-resolution mechanics that are as transparent as possible. A d20 is about as granular as I can stand in task resolution for various reasons (I'm sure I'll get into those as time goes on) and see no reason why that will ever change. When I play sci-fi, I want to have the same feeling I do as when I read a good sci-fi novel or watch a sci-fi film. If I play a Lord of the Rings game, I want it to engender the same excitement and wonder the films created. I don't want to have to think about what dice to roll and what I can do to increase my modifier bonuses. Those things I want to fade into the background. If there is a "corruption" sub-system though--something similar to the Sanity Points from Call of Cthulhu--having that present in my mind emulates the dread and fear that Frodo felt while possessing the One Ring. I don't want that to fade into the background. That mechanic would emulate the feel of the films and increase the richness of experience.
I feel that game designers would do well to consider which sections of their game systems should be apparent and which should be transparent.
