Well... it was something like the Sega Multi-mega / Sega CD-X, an official "fused combo"... but I suspect Sega had in mind a more popular price for the Neptune than the Multi-mega (which was an expensive product, a product intended for the most "sophisticated" user... or the true Sega fan who really wanted to pay for an impressive piece of technology: MD+Mega CD in a portable CD player size... in early 1994!
Neptune was probably thought as "a complete 32X" console for the casual new user, with no need to buy a Genesis/MD, an no need to use "all that nest of cables" to connect and use them. Of course Neptune included the hardware of the Genesis, so it could play its games "natively", but with a Neptune, you really would have bought a "complete 32X console" with its own controller ports, just one power supply, and its own On/off and Reset buttons. The part of the single power supply was by far the biggest advantatge in the user experience, versus the full MD-32x combo.
As a fan of the 32X, the idea was interesting cause 32X could have been, now, "its very own console" (32X has a LOT of new hardware, to be considered just an add-on for MD)... but aesthetically, I always preferred the combo "32X with a MD model1". In fact, I always found Neptune prototype not that attractive. To compare, I do always thought Multi-mega was (is) really beautiful.
Only in a world were Playstation never existed... Neptune would have made some sense. It would have been the "cheaper" 32bit Sega's option, while Saturn (having a very related hardware) would have been the "Premium" option for Sega players, and 3DO their only (and very expensive) competition in the 32bits era, before the late release of N64.
With Neptune, you could have had some downgraded ports of the Sega 3D arcade games (specially from Model 1 board), like Virtua Racing Deluxe or Virtua Fighter are (excellent expanded versions, both), as well as real good ports of the Sega 2D Arcade classic games from the System 32 era and its previous super-scalers of the 80s (like Space Harrier and After Burner Complete). Also, some original 3D games like Parasquad/Motherbase or Stellar Assault/Shadow Squadron, or even some new 3D textured nice "experiments", like Metal Head (potentially, the 2nd generation games for 32X, which never arrived because the console was already discontinued, would have had some more 3D textured games).
Nintendo was still very far to launch its Project Reality/Ultra64 in late 1994, and Star Fox for SNES and Virtua Racing for MD already demonstrated people had a LOT of interest for 3D polygonal games. So... 32X could have been an interesting machine for many, thanks to its 3D capabilities, and Neptune... the best way to get one.
I will just remember to any: in 1994, Atari Jaguar was far away to be a serious 3D game console with no possibility to compete against the 32X in 3D games, and its expensive Jaguar CD add-on was just that... a simple CD add-on with no real 3D new characteristics, only adding Video FMVs and Audio CD to its games, now in CD format.
3DO was crazy expensive for the majority of the public, and... although it had some few nice games, it didn't have anything similar to Sega's arcade games like 32X had.
Things like the Phillips CD-i was not really created to be a console but as a family Multimedia/Encyclopaedia/Interactive Manual machine (its audio and video capabilities were fantastic, but its game scrolling was just fucking horrendous, way way worse than the original Mega Drive... to be a serious fifth generation console, and with NO 3D capabilities at all). Philips only decided to focus on promote and sell the CD-i as "a console", when it was clear its sales as a "Multimedia Family Center" would never be the expected ones.
The other possible competition for Neptune, in a non-PSX world, were: Neo Geo CD... and interesting cheap option if you were fan of the Neo Geo ultra-expensive games (mostly, fighting/Beat 'em up ones), but had no 3D capabilities as the original Neo Geo cart-based did not had... and Virtual Boy, which was a huge conceptual mess by itself, and its 3D was basically based on sprites, not on polygons (although it tried to experiment with wire-frames in some few games): I could imagine a lot of people preferring to buy a Neptune than a Virtual Boy during an hypothetical 1995 and 1996 with no PSX. Even the successor of the PC-Engine, the PC-FX released only in Japan, was a flop, because NEC decided not to put a 3D processor in favor of FMV games in that console, and people demanded 3D games by the end of 1994: The marked just repudiated it.
So... maybe if Playstation never existed, then Neptune could have been an interesting option to be released by Sega, as the little brother of Sega Saturn, like Master System was for the Mega Drive in Europe during the first half of the 90s. An maybe could have replaced Genesis 2 / Mega Drive 2 model, to be the new standard Mega Drive model by itself (being 100% compatible). At least, until the release of Nintendo 64 in mid/late 1996 in Japan and USA, and march 1997 in Europe.
But of course, with Playstation appearing already in December 1994 in Japan, and in US and Europe the next year... Neptune had NO reason to be released anymore: 32X was condemned. 32X could never be a competition for PSX, and Saturn itself had serious problems starting in 1996 and needed all its SEGA internal teams producing for it 100% of its time. No place for new internally developed MD or 32X games anymore. Not even for Game Gear. Just Saturn.
Plus, the hard competition between PSX and Saturn lowered the price of those EXPENSIVE consoles a LOT the next 1-1,5 years after their release, so Neptune would have turned to be a real nuisance for Sega.
And for the cheaper options..., Mega Drive 2 simply continued to sold good in Europe until 1997, and always would had been cheaper to produce than a Neptune. Playstation and Saturn competition pushed the game technology way faster than the original forecasts in 1993/1994, and 32X support and games simply disappeared (as the rest of the "new generation consoles" will, by 1996, apart of PSX and Saturn).
So, Neptune was an interesting concept... but seeing the PSX capabilities, Sega probably did the right thing cancelling its launch. And fortunately, it was not a new console, just a convenient "revision", so... we did not lost a full catalogue of games only because its cancellation.
