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When used as a description of a Hollywood movie or any other motion picture, the phrase is used to specify that the film is not a cartoon. This is important in situations when the film in question is inspired by a cartoon, such as the Flintstones or Dennis the Menace movies.
The term is also used within the animation world to refer to non-cartoon characters. For example, in a movie such as Who Framed Roger Rabbit, where humans and cartoons co-exist, "live action" characters are the "real" actors, such as Bob Hoskins as opposed to fake actors, such as Roger Rabbit himself.