Explain to me why PCs cant branch out on their own? Why a console is stopping PCs from "show its true graphical potential"
It's far from only graphics, very far from only graphics, but since you asked specifically about graphics I'll use that as an example.
Imagine you're running a company that makes games (either directly or through subcontracting, doesn't matter which). You have contractual obligations to publishers. You have competitors who are making similar games and which comes out first will make a big difference to sales. You have other reasons for deadlines, such as seasonable variations in sales.
You have three main potential platforms for your games - PC, PS3, Xbox360.
PS3 and Xbox360 are very similar in terms of hardware capability and input devices. You'll need to optimise a game seperately for each, but you can use the same artwork and the same UI design for both. PC is vastly more powerful and has completely different input devices by default.
So your choices as a developer boil down to one of these:
1) Develop a PC version of your games and a console version. Two quite different development projects, requiring two teams of artists, two teams of UI designers, etc, etc. You'll end up with two substantially different games, requiring two sets of support (if you bother with post-sales support).
2) Develop a console version of your games and only a console version. Port it across to PC if you want, but don't develop for PC. This decreases the time and cost of developing the game - you only need to develop one version. One team of artists, one team of UI designers, etc.
So companies go with the second choice. In some ways, they have to. If they do the job properly (option 1), they'll be beaten by competitors who only develop for consoles (option 2).
This, obviously, means that PC games are limited to console capabilities. Not just for graphics, but including graphics. There might be some resources allocated to tarting up the console graphics a bit for the PC version and there might be some resources allocated to slopping in some graphical options into the menu for the PC version, or there might not. Even if there are, it's still all designed for the limitations of the consoles that it was designed for, in graphics and in everything else.
Even if they bother developing a version optimised for PC, it's still designed for consoles. Usually they just port the Xbox360 version to PC, with varying degrees of casualness, and rely on the far greater power of the PC to brute force the inefficiencies of quickly and cheaply done porting.
Obviously it's impossible to do it the other way around, i.e. design for PC and use that design on consoles. The result would be unplayable because the game wouldn't fit into a console's memory, so it wouldn't work at all. Even if it did, somehow, the UI wouldn't be restricted enough to work with a console's controller and the framerate would be a matter of seconds per frame rather than frames per second. You must either design a console version and a completely seperate PC version or design only a console version which you then port to a PC with varying degrees of giving a damn. All your competitors will be designing only a console version, so if you double your workload by designing both then your costs will be much higher than your competitors' costs and you'll probably go out of business.
So yes, consoles do greatly restrict the development of games for PCs. Graphics are merely the most obvious way, but it applies to pretty much every aspect of a game.