It's a collector's market, the value is in the demand and scarcity. Same as with all other collectibles like baseball cards and such. Or even wines, there are some that are so old they become undrinkable but cost like a car. In collectors market the price is detached from any kind of purpose of the item.

Also consider that most Magic cards are also valuable only because of their collector status. The valuable ones are mint first editions and nobody is buying them to play them.

So who fuels this collectors market? Nostalgic 30-something that have now disposable income and want to buy things they wanted as children. Same as with videogames collectors and such. You don't need an original copy of Supermario to play it, but people still spend thousands to buy it.