Magnet based approach would make captures cumbersome, an arm that lifted and removed pieces would be more natural during captures.
Squareoff handles it by first having the captured peice walk slowly off the board, then the capturing piece moves into its place; Looks rather immersion breaking to me.
To be clear, I had this device when I was a kid, and it does use magnets; it is just that it had to move the magnet with motors underneath the board.
You can also see it doing captures in the video: it does them the same way you say that "Square Off" ("rip off"? ;P) one does: by first moving the captured piece off the board.
I found a video of someone pitting the Grandmaster vs. the Square Off (which won, though of course that seems obvious given that we have gotten much better at gaming AI in the past few decades)!
Squareoff handles it by first having the captured peice walk slowly off the board, then the capturing piece moves into its place; Looks rather immersion breaking to me.