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A couple of things happen when you remove options. First, they force a different question — not "what should we make?" but "what can we make given what little we have?" It's actually much easier to operate creatively within smaller conditions.
Second, they seem to push developers toward play. When you can't get caught up trying to beat others in raw power or realism, you end up focusing on something that matters more than anything else in gaming: fun. Nintendo's most successful consoles are pretty weird compared to their competition.
The Game Boy had a black and white screen while competitors had color — it won out on battery life and portability. The DS brought in two screens, one of which was a touchscreen, and some games relied on its microphone and motion sensor for interesting mechanics. The Wii was shaped like a TV remote, which made it accessible to all ages.
This is what Gunpei Yokoi called lateral thinking with withered technology.
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