Hi,
We did the Pirate Encounter this past February and we really enjoyed it. The pirate actors are believable, with the right mix of swashbuckling and arguing with friendliness to the littler travellers. Once you are on board, the "show" part is the first 1/2, and the kids get to swab the decks etc. as they sail around. You get a drink, but no food (juice or soda for kids, rum punch for grown-ups (or soda)). Then they anchor near the ship and you can jump into the sea with a life-jacket on. Our youngest daughter was 6 and a half and is also a good swimmer and she walked the plank and jumped in a few times along with her older sister and cousins. Our older nephew (13) and daughter (11) jumped in from higher-up, which is made available to older kids and adults who are interested in the adventure (I stuck to the lower level plank, but DH went up there with the older kids and they jumped in a bunch of times).
You definitely need to wear the life-jacket to enjoy the swim - it allows you to float around and not get panicky about drifting too far away from the ship. The water is warm, the Magic is a cool backdrop - you may want to bring a waterproof camera to take some pics from the water.
Oh, they also fire at the Magic and scream and yell at the passengers walking around on Deck 4 or standing out on their verandahs which is pretty funny.
We really liked this excursion - it's reasonably priced, a lot of fun, and if you book the first one of the day (1st thing in the morning) there is lots of time to do something else at Grand Cayman. Have fun!