Companions of Xanth follows the story of Dug, a "Mundane" (the Xanthian term for a non-magical person) who is playing a video game set in Xanth. Unbeknownst to Dug when he starts playing, the video game traps him inside the fantasy world of Xanth and he is forced to find his way home. The prize for winning the game is a legitimate "magical talent", a random magical power that every inhabitant of Xanth is born with. Dug, however, is playing the game as part of a dare with his best friend, having no interest in magic. He appears to those in Xanth as a floating monitor screen because of this willful estrangement with magic.
The player must solve puzzles in the usual point-and-click adventure game fashion, as well as interact with many of Xanth's colorful inhabitants, in order to escape the game. He is helped (and occasionally hindered) by a rival Mundane named Kim, who is also playing the game, as well as a titular "companion of Xanth": a Xanthian native ensorcelled into helping the game's players. Though the player has multiple companions to choose from when they begin the adventure, progress beyond the starting location is impossible without selecting canonical companion Nada Naga, the serpentine woman from the box art. She will assist Dug as best she can, offering advice and hints. It goes without saying (at least to those familiar with the Xanth series) that most of the puzzles in the game involve puns and wordplay.
Those familiar with Legend's other adventure games will be at home with the interface, but it's easy enough for newbies to pick up on: Inventory is displayed across the bottom of the screen and the game window is displayed above, which the player can interact with to collect items, manipulate fixtures or talk to people. The player has a list of actions on the left to choose from (such as "Talk" or "Get") and a compass in the bottom left for navigation.
The game was created more or less in tandem with Demons Don't Dream, the sixteenth book in the Xanth series, by Piers Anthony. The book also follows Dug's adventures with the game, though events unfurl in a different manner. The book came out shortly before the game, and was available to purchase alongside the game in a boxset.