It's early in the year 1994, and the 32-bit era is just taking off with the PSX around the corner. Other cd-based systems are already on the market.
Hypothetically, you as a customer are ready to upgrade, but have a sizable library of carts. Boom, 32X.
On paper, the 32X is an entry point into the next era that is both modular and backward compatible. The base unit gets you started, but also owning a Sega CD can unlock the full potential of the Genesis ecosystem with Sega CD 32X titles, and of course retain Sega CD compatibility.
A modern work like the Doom 32X Resurrection romhack gives a glimpse into a scenario where Sega fully committed to this premise. The way it works is the Genesis processor becomes a delegator, handing off tasks to the other processors found in the 32X and CD (if present). By all accounts, this handoff works much smoother than one might think.
To be clear, I'm not suggesting going all-in on 32X hardware would have changed anything for the better. Obviously, obviously they should have just been patient and devoted that much more resources toward the Saturn instead of panicking.
I just get where their heads were at - right? It made sense. Sorta.
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