I just finished Shenmue II (again) the other day, so I saw the Saturn Shenmue video again, which I hadn't seen in a while. Watching it again made me think, how the fuck did they do this with stock Saturn hardware? Parts of it look too complex for even the N64 to handle. A lot of it looks pretty similar to the final game (with simpler graphics, obviously), especially the parts from Shenmue II. I also noticed that Ryo looks noticeably younger in that build of the game, whereas other characters like Lan Di, Iwao, and Ren look pretty similar (at least in overall design) to the final game.
The reason "Ryo" looks younger in the Saturn prototype footage is because Shenmue was originally intended as the first of several spin-off games telling the backstory of the Virtua Fighter universe, with this installment being Akira's origin. If you've ever seen the Virtua Fighter anime or some of the images on Akira's disc in the CG Portrait Collection, Ryo's early design makes a lot more sense. In the final game, Ryo's main character model ID is still AKIR, and at one point in development, the entire project still had the working title of Virtua Fighter RPG: Akira's Quest.
As for how AM2 managed some of the techniques demonstrated in that video, it's quite easy to figure out if you break down each scene, though I'll only concentrate on a few of the most notable examples for now...
In the dojo, you can see a large portion of the wall flicker out of the camera's view, which is carried over from the same problem occurring with the wall surroundings in Fighting Vipers on the Saturn, to use another of AM2's previous examples (the same thing happens later in the warehouse where Ryo encounters Ren and his gang). To save on the overall geometry count, my guess is that AM2 was using a combination of mostly static angles and larger textured polygons to provide detail, hoping the occasional glitch wouldn't break the illusion too much.
Speaking of illusions, how about the sequence where Ryo enters Ren's hideout to examine several cassette tapes? For a single frame before the camera angle changes, any elements being generated by the VDP2 chip have a slight head start over anything handled on VDP1. In this case, the floor moves quite drastically, and there are many further instances of this throughout the same video. Actually, it's a regular occurrence in many Saturn games, though I notice it most in the opening sequence of Virtua Fighter Remix and VF2, where the exact same method was used for rendering ground layers.
Continuing with this scene, how is it that the table and chairs are more detailed than everything else around them, both in terms of polygonal complexity and texture resolution, yet also appear to exhibit clipping issues with 3D elements? If my understanding is correct, it's because they're actually sprites. To be more specific, they were originally created as models and captured at the necessary angles, which are then stored as bitmaps and placed into a room as needed. You can even see one of the chair legs glitching through to a place it shouldn't be, although its exact position never changes, suggesting this was a "feature" inherent to the texture and not a real time issue.
On a more general level, the frame rate appears to be somewhere in the region of 12-15 fps, which is rather consistent with later Saturn titles of a similar complexity like Panzer Dragoon Saga. However, unlike that particular game, Shenmue doesn't seem to have any points where real transparent effects were being utilised. Instead, AM2 was getting by with the common dithered alternative, which is far less taxing on the hardware and easy to implement in SGL, the software library this department created internally. Although most shadows give the impression of being alpha blended, this is merely a result of the source video's low quality combined with several generations of compression - at certain stages, the dithered pattern or giveaway blue/rainbow artifacting is present, such as when Ryo opens the hatch leading down to the basement.
I think Yu Suzuki must've had a pretty clear plan in his head from the very beginning, though obviously there were plenty of changes. That also makes me think that he probably already had a pretty clear plan for Shenmue III before II was even finished.
From what I can gather about the production of this game, Yu Suzuki first completed a design document for what he conceived as a 16-chapter series by the end of 1996. Based on the Saturn footage we have, it's clear this first game didn't just incorporate the first chapter, later released as a standalone installment for Dreamcast, but large parts of what eventually surfaced as Shenmue II, which actually spans chapters 3 through to 5, its last disc once being meant to serve as the opening of Shenmue III. I once read somewhere that Shenmue II was planned to conclude with Lan Di's escape in a helicopter, followed by the short scene where it's revealed that Ryo must then travel to Guilin. However, it's believed that Sega felt this wasn't enough of a suitable climax, especially as there were concerns about a third game being financially possible.
Beyond a few leaked images and some locations from beyond the Guilin area being found through data mining, it's no secret that at least the opening five chapters of the overall Shenmue saga were in development simultaneously, with most of this content dating back to the Saturn era. Of course, it's also believed that the second chapter - Ryo's boat journey to Hong Kong - was never intended to be played, but instead referenced in later interactions. For example, at the start of Shenmue II, you can speak to a mother who thanks you for protecting her daughter from an attacker. In a short graphic novel, it's revealed this was another fight with Chai, who uses the child as a human shield before finding himself launched overboard. There's now talk of this battle featuring in Shenmue III either as a flashback or playable sequence, even if its conclusion would be predetermined.
Finally for now, I seem to recall it once being mentioned that a large part of the first Shenmue in its Dreamcast form was produced after the game's content had been split to have chapters 3-5 held back for the sequel. A lot of the earliest media for Project Berkley/Shenmue featured ideas that wouldn't feature until Shenmue II, though Shenmue Chapter 1: Yokosuka (to use its Japanese title) has some improvements when compared with what came later. Although most of these differences are minor, where in Shenmue II do you see phones with realistically moving cords, not to mention the generally less consistent frame rate and sections plagued by the lack of texture filtering - roof tiles and the red brickwork of the Aberdeen region especially suffer as a result of this.
Sorry for such a lengthy reply, but I think it's a shame we've yet to see a proper Digital Foundry type retrospective on the Shenmue Saturn Version footage. While it's not doing anything exceptionally special, the sum of its parts is an overall quality of presentation that few developers were able to match on either of the two other major consoles from this era, and I feel that it's more than worth studying to such a degree. If anything, I'd say this prototype stands as one of the most remarkable fifth-generation tech demos. Now that I think about it, would this level of graphical complexity have been possible on the Sony PlayStation or Nintendo 64? I'm sure the PS would have come the closest, but not without some compromises. For one, the larger sprites made possible by the Saturn's dual-VDP setup would need to be switched out for polygons, and that would have led to more frequent glitching, particularly when combined with the cinematic angles that AM2 chose for cutscenes.