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Yes, but Undertale's simplistic style makes it comparable to games of the era. The main thing I can't imagine is people going from basic linear hero RPG to getting dunked on right in the feels with Undertale's overall plot.
The graphics wars were much bigger back then than they are now, believe it or not.
To be a 2D game in the mid-late 90's was suffering.
It wouldn't be a hit in the 90s because people who were playing video games back then were kids and most would not understand the complexity of the game.
What you are missing is that Undertale wouldn't be possible 20 years ago. At least not on consoles. Despite using 8-bit graphics for the most part, the engine of the game is somewhat sophisticated, and graphics are more detailed than they look.
UnderTale is just lucky it's an Indie game, or it'd need an ESRB rating and that just sounds like bad news.
The ESRB wasn't the problem in the 1990s, fear of theocratic politicians and their base was. That resulted in Nintendo in particular taking things hilariously far to the point publishers/developers were scared of NoA and did real dumb stuff like holy = pearl or white.