The console market has steadily developed from simple one-off games (Pong) to fully featured general purpose games systems.
Older game consoles and their software now live on in emulators as they are no longer supported by their manufacturers. However, console makers try to prevent their games from being played on emulators using copyright-like exclusive rights in mask works and a protection of encrypted media created by the United States' Digital Millennium Copyright Act and foreign counterparts.
Note that the "bitness" of past generations (8-bit, 16-bit, 32-bit, 64-bit and 128-bit) were in large part created by the console makers' marketing departments and may have little to do with the actual architecture of the systems.
Lets face it, the majority of consoles are bought by parents/relatives for their kids and which console they will buy is going to be the deciding factor.
NES is considered the second coming of consoles after the crash of 1983 and benefitted a lot by being the only console on the market for several years, as well as having a large set of games made in Japan, where the crash never really happened.
Consoles keep themselves affordable by selling the boxes at a loss and recouping the losses by adding fees to the cartridges or DVDs (by law, I believe, this can be no less than manufacturing cost but they can still sell it at no profit).
Although video game consoles may be powered by similar CPU chips as desktop computers, the hardware is under the entire control of their respective manufacturers, and the software is specifically geared to the machine's capabilities.
A flood of consoles, glut of low quality video games by smaller companies especially for the 2600, industry leader Atari hyping games such as E.T. that were poorly received, and a growing number of home computer users caused consumers and retailers to lose faith and interest in video game consoles.
Sega regained market share by releasing their next-generation console, the Sega Mega Drive, which was released in Japan on the 29th of October 1988, and in the USA/Europe on the 1st of September 1989 (renamed in the USA to the Sega Genesis), two years before Nintendo could release the Super Nintendo Entertainment System (SNES)(1990).
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