When I was younger (I've not really played since) we played by a word being valid if you could state what it means and use it in a sentence. An Oxford English Dictionary was used to check. For domain specific words other references were permitted (books on computing for instance, or an encyclopedia). Acronyms were permitted only if in common use in that form. Local slang too, I supposed in modern times adding Urban Dictionary to the references would cover that.

But the important thing was to state the meaning before looking up the word, not just using the reference list to pick out combinations that work with your letters. It being a real word did not count if you didn't understand the word.

This wouldn't work as well for online gaming, I expect. And of course you can game it by memorising the meanings of some obscure words, but that (expanded vocab) was part of the point.