What is says on the front of the DC is that it is compatible with WinCE. That's the same as saying a PC is compatible with Windows. You don't have to run Windows at all, but the option is there. Same with DC. DC's SH4 CPU was used in many PDA/mininotes (so was SH3). WinCE targetted the SH CPUs along with others.
I think WinCE games on DC were lesser in quality primarily because they were ports from another platform. They weren't tailored to the hardware. So obviously, compared to games designed around the DC's architecture, they aren't going to be as impressive. It's the same today with all of the multiplatform games for PS3/360 and older games for Cube/Xbox/PS2. The reality of the industry today is that game costs are too high to develop for one platform anymore. And, of course, more potential buyers = more potential sales = more $$$$$ regardless of whether it's needed to cover costs or not.
I think WinCE games on DC were lesser in quality primarily because they were ports from another platform. They weren't tailored to the hardware. So obviously, compared to games designed around the DC's architecture, they aren't going to be as impressive. It's the same today with all of the multiplatform games for PS3/360 and older games for Cube/Xbox/PS2. The reality of the industry today is that game costs are too high to develop for one platform anymore. And, of course, more potential buyers = more potential sales = more $$$$$ regardless of whether it's needed to cover costs or not.