Mistah Kurtz, he dead.

Again, he was speaking as a law professor here. "Realist" has a very specific meaning, referring to a legal movement prevalent in the first half of the twentieth century. One of the core tenets of the realist doctrine was, essentially, that the decisions of judges constitute the law, not the documents that purport to guide them. And initially, this was met with some interest. As fascist and totalitarian governments began to rise on the Continent, realist perspective was viewed somewhat more skeptically - the realist argument that what judges did *was* the law could quite easily be seen as legitimizing a totalitarian doctrine. So here we have a burgeoning legal movement in the judiciary... which, in the extreme, looks uncomfortably like what we're fighting. Part of the retreat from realism as a jurisprudential philosophy was the uncomfortable comparison Obama mentions.

That's what that quote is about. Realist perspective is something that looks innocuous that has specific meaning in legal theory, and specific meaning that any decent law student, much less a law lecturer, would understand. I don't blame people outside of legal academy for not understanding it, but it doesn't mean what they seem to think it does.