Sega was on top of the world in the early 90's They were the premiere at-home video game company at the time...
Where did they go?
Well, you started to see a shift from Genesis to Super Nintendo in the mid-90's. Genesis really didn't have enough exclusive games; with Nintendo you saw good series pop out like the Donkey Kong Country series, a ton of unique, masterpiece-caliber RPGs, etc...
So this kind of put Sega in a hole.
You then saw the Sega CD pop-up. It didn't succeed. Niether did the Sega 32x. Two potential Genesis add-on's flopped. The hole gets deeper.
They invested a lot in the Saturn, but they didn't see good results. I'd say the reason it failed was because of Sony, and Playstation. One of the key figures is that Saturn was $400 when it came out, while Playstation was "only" $299... that's a big difference in price. It really was horrible start.... Playstation sold 100,000 units in its first swing in America... contrasly, Saturn sold 80,000 units from its May release until Playstation's release (which wasn't until September).
They were in debt and released the Dreamcast, and that really didn't pan out either. A lot of people speculate that Dreamcast was ill-fated, do to the fact that Sega was on a string of flop consoles/accessories (32x, Sega CD, Saturn)...
So where did Sega go? They didn't leave, they just got out of the console market. That has shifted them from a Nintendo-caliber powerhouse to a relatively mediocre game-making company...
Being a Genesis boy growing up, it is kinda sad that they're gone.