From Nordic Larp Wiki
Magic Circle describes a concept originally derived from ritual magic where it is a space marked out by the practitioners, which they believe will contain the energy and form a sacred spaceWikipedia. In game theory, the magic circle is "is the membrane that encloses virtual worlds" Wikipedia.
In all forms of Larp, the Magic Circle is the convention where the game begins and ends, physically, temporarily and by the use of rules, defining where those rules are valid.
Examples of the Magic Circle outside of Larp
Football field, Chess board