Because no one would ever dye their hair with those ridiculous colours in a medieval setting. Also there are games with green and blue haired protagonists.

"Discover the long forgotten secrets and hidden paths in this high fantasy world, featuring exhilarating battle encounters, interconnected maps full of places to explore, and an immersive story where every choice matters"

Its a fantasy world. So anything goes really right? ;)

If you want the world to be believable, then no. Only the specified fantastical elements should be fantastical, everything else should remain grounded. Otherwise why do we even bother making graphics better, researching anatomy and muscle structure for animation, making physics realistic, etc?

I know Todd Howard has kinda lost some reputation recently, but I am still in complete agreement with him when it comes to trying to be as realistic as you can.

Yeah but the word fantasy really implies anything or everything can happen.

What about someone like Madeline from Celeste? Her hair is red, unless she's used up her dash (and not regained it), in which case her hair is blue until she regains her dash?

Many Japanese games have blue-haird protagonists, including Dragon Quest 6, Chrono Trigger, SaGa Frontier (play as Lute (not recommended for a first timer); ironically, Blue isn't blue-haird), and many others. SaGa Frontier also features a green-haired protagonist (play as Asellus), though she isn't entirely human (she plays mostly like a human, however).

Sometimes, it can be nice to have less realistic settings. For example, alien fantasy worlds can be interesting, like those of Paladin's Quest and its sequel. Or, even games like Morrowind and Shivering Isles (Oblivion expansion) which still feel quite alien.

Or, to take a different direction, games that don't even pretend to simulate anything resembling reality. See Tetris, for example, or other games in that genre (or even other abstract puzzle games).