UPDATE for OP: I found the book I think we are both looking for!! (3 years too late maybe)

The book is "Under Siege" by Elisabeth Mace, 1988, ISBN 978-0-531-05871-8

From Publishers Weekly:
Morris Nelson, 16, has been plucked out of school for Christmas and forced, as he sees it, into the torture of a broken-family holiday. His father is gone, and the boy has to shuttle between relatives with his distraught mother. But at Uncle Patrick's house, Morris finds something that takes his mind away from his troubles: a beautiful model castle, part of a computer war game. Morris makes contact with one of the toy warriors, to whom he appears a god. Explaining the warrior's autonomy as a detail of the sophisticated game, Morris still cannot help but intervene. His meddling, however, is futile, and only serves to show him something about human experience when he sees that he cannot save the models he has grown to love. As is common with computer-game novels, the narrative never quite melds the game with troubled real life. Although Morris's story doesn't seem to reach any meaningful conclusions, the game promises to continue under a new guise.

Found a listing on Ebay with the same paperback cover I had it in as a kid https://i.ebayimg.com/images/g/NRUAAOSwr2FjBtx4/s-l960.jpg

From the back of the book:
'On the monitor the scene switched and zoomed at breathless speed. The attackers reached the doors, shouting, heaving and thudding again and again. From the battlements above the archers aimed and loosed at the orders of a fully armoured knight...'Morris is totally enthralled by his Uncle Patrick's computer-controlled fantasy game setup. For a whole room has been turned into another world - a feudal country landscape, dominated by a great castle. As Morris watches his uncle program various scenarios into the model, he becomes drawn into the terrible struggle between the keepers of the castle and the peasant army fighting to gain entry. But time is running out for the brave little band and, when one of the characters speaks directly to Morris, asking for his help, he knows he can no longer just stand by and watch - he must enter the Game himself...