[syntheweave]

There are a bunch of considerations. As resolution and color depth goes up it becomes harder to throw a lot of graphical detail on the screen through traditional illustration, so games that went down that route increasingly became flat and cartoonish, while 3D games could be filled with textures, lights and "greeble" architecture. It was also a way to enforce style consistency. Lucasarts didn't have "art direction" as a role until DOTT, and their earlier games show a lot of style drift between assets. Early 3D enforced a style through the constraints - often not a good one, but definitely something that could look consistent just through the model/texture/light process separation.

The biggest one is actually animation. Animation gets expensive as you add more detail, and when you add resolution, you discover a need to add more frames of animation to make it still look smooth, so your art costs can explode. The use of 3D here is motivated by having camera-independent animation, and being able to use it for every minor environmental effect: think of every Myst-style game where you pull levers and push buttons and open doors. Character animation in early 3D was bad, but it was also "enough" to look representative, so it ended up beating traditional or live action approaches.

[wincy]

The Banner Saga or Cuphead are examples of the amount of time and care it takes to do high resolution 2D artwork properly. Those games are absolutely breathtaking because of it, but their development cycles took a very long time for relatively short games because of it. You just can’t keep up with a 3D asset pipeline.

[djur]

As I understand it, the prerendered backgrounds in these games were rendered as video clips. This was an efficient way to superimpose 3D on a 2D backdrop. But I imagine it may have affected how crisp the backgrounds could look.

[mrob]

Use of video clips for backgrounds was possible but rare. The opening of Final Fantasy VII is a good example, where it blends seamlessly from the opening FMV to control of the characters. You are correct that it affected the quality. You could easily see the video compression artifacts. The more common non-video backgrounds looked better.