I wasn't alive when any of that was going on. Why was there a crash in 1983 if there were so many cheap consoles to choose from?
At that time, third party software was a new concept. Activision was formed by ex-Atari programmers who felt they were underpaid and under-appreciated. The president of Atari rather infamously told them that he felt that programmers were no more worthy of compensation and credit than the people on the box assembly line. They started Activision and immediately put out many of the best 2600 games. A few other third party companies formed and put out high quality software, too... Imagic, Parker Bros., even Mattel (Intellivision) and Coleco set up third party divisions for the 2600.
However, as the industry grew, a lot of shoddy companies started producing tons shovelware as video games began to be seen as easy money. They released broken and boring games that sat right next to the high quality software. Atari didn't have any certification program like Nintendo and Sega started later to vet the quality of the titles coming to their system. For example, as a young kid, I was amused to see that even Quaker Oats had their own third party company (U.S. Games) developing for the 2600... and they weren't even the worst of them.
There also was barely any gaming press back in those days - only a couple of magazines existed that provided reviews of games, and they couldn't cover them all. These were such early days in the industry, magazines often would use hand-drawn illustrations rather than screen shots because standard review practices were only starting to be established.
Consumers had a hard time figuring out what was a good quality game and what was drek. Eventually everything - great, mediocre, and terrible - ended up in dollar bins because the market was flooded with too many games and consumers were wary of them. U.S. retailers had had it with games, and this was what's known as the "crash."
However, this only occurred in the U.S. and the games markets in Europe and Japan continued to go on growing their markets. Europe shifted more to PC development and Japan, of course, had the Famicom (NES) and eventually the Master System.
