dgVoodoo is a system library wrapper that reimplements various old graphics APIs in Direct3D 11. It is often used as a compatibility layer to improve older software on newer versions of Windows. It is also used to extend the graphics of an application beyond their original capabilities (forcing higher resolutions, anti-aliasing, texture filtering, etc.)
LEGO Island was written for Windows 95 and DirectX 5.0 using APIs that are now over 20 years old. Over that time, both the Win32 and DirectX APIs have changed dramatically and, despite Microsoft's generally good track record on backwards compatibility, LEGO Island has suffered from various compatibility issues that have been gradually introduced over the years. dgVoodoo is commonly used to fix these issues by modernizing LEGO Island's now-antiquated function calls.
dgVoodoo is also commonly used to run the game at resolutions higher than its fixed 640x480.