The truth of the matter is that it came out at the wrong time: online gaming was a particularly niche new market in 1994, as the internet itself had yet to reach any sort of widespread adoption. It was critically acclaimed, but it ultimately failed commercially and was shut down a few years after launch.
The PC-FX also boasted a higher price than the PlayStation and Sega Saturn NEC tried to offset said pricing by marketing it as a multimedia device, but the only popular format it was capable of playing was audio CDs, which Sony's cheaper console could already do. The lack of 3D made it come across as vastly inferior to consumers and developers alike.
Instead, they tried to advance Full Motion Video, heavily pushing for software based on popular anime series and featuring pre-rendered animated footage. It completely lacked a polygon graphics processor at a time when the entire industry was making a major shift towards 3D gaming, as the company wasn't convinced polygons would be the future of video games due to the blocky and simple appearance of such games at the time.
It also greatly damaged the company's reputation in the West, being one of the reasons for the failure of the Saturn in North America, as a distrustful consumer base was now wary of a third piece of hardware that might under-deliver. As a result, the 32X was a flop that only sold 600K units worldwide. Gamers had little interest in purchasing a very temporary stopgap that wouldn't be supported with games for long, and Sega themselves forced their American division to make it out of fear of the Atari Jaguar. Which would release in Japan before the 32X's launch and would be released in North America just six months after the 32X's launch. However, not only did it came out shortly after the Sega CD, another add-on for the Genesis that was met with lukewarm reception, but consumers would soon learn that Sega was developing a standalone 32-bit system as well: the Sega Saturn.