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Ordinary Windows/Dos PCs in the US can not run PC98 software, and likewise ordinary DOS games meant for US computers (such as Commander Keen) can't run on PC98 or PC98 emulators.

Is this because the version of DOS they run is different (one being English with one-byte-per-character, the other being Japanese with two-bytes-per-character for Kanji), and due to this inherent difference in handling text characters the OSs are sufficiently different as to render them 100% incompatible with each other?

Or is it that while most PCs use Intel CPUs, NEC PCs (such as the 8801, 9801, 9821) use some other brand of CPU which doesn't have the same instruction set as Intel CPUs, and thus they have 100% incompatibility with each other?

Or is there some other reason?

Short answer: same OS, different hardware.

Long answer: although both use the same CPU family, PC-98 is as compatible with the IBM-PC as the PC-88 is with the MSX.

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NECstasy | Kaminarimon HES Music Archive | VGMRips YM2608 Archive | YouTube Channel

Although there's a fair amount of hardware difference, I think programs generally fail when they try to initialize a different video mode than is available in the respective system (Int 10H call) or attempt to use ROM-BASIC (Int 18H call) which isn't present on PCs.

Some PC-98 programs can indeed run on PC, and vice versa.

I think the PC88 was when NEC was popular ( I was reading on the web somewhere ), and seen as a nationalist computer. They were the Windows/IBM of Japan, or what SONY was to Zenieth back in the coldwar part II ( Japan vs US vs Europe vs Asia ). Then when the whole Windows 3.1 boom came around, everybody ( meaning the NEC community ) realized their was not so much of a difference between the PC98 and IBMPC/Intel/Windows that they could eventually buy Windows 95. Also NEC reflected this situation by delaying CD development for the PCECD ( as read on a PCE webpage/wikiathever elsewhere ). NEC already knew what was occuring to their line of computers from the start of the PC98 lifetime ( Ironic naming your computer 98, at the end of the 1980's ?? ). NEC slowly moved away from making unique computers and focused on chipsets, boards, and other computer related devices, toys, and things that would sell.

Right now NEC decision makes it a powerfull competitor. They could overthrow Microsoft if they ever decided to get back in the floppy and OS business.

Both the PC, PC-9801 and FM-Towns wiill happily run pure MS-DOS programs without issues. The uncompression program LHA for example will run on all without error. (If you can transfer it then you can run LHA on a ACT Sirius 1....)

You can happily run Windows 95 games on a PC-9821 or FM Towns that is running Windows 95, even ones that require Direct X (a version of Direct X is available for the PC-9821...)

What's the difference between 9801 and 9821?

Also, why does the MS-DOS for PC-98 comps not work on American PCs (IBM PC compatibles), and MS-DOS for American PCs not correctly boot on PC-98 comps?

Do they both use Intel CPUs? Or is there some other fundamental difference that makes each computer type not like software meant for the other computer type?

PC98 eventually fell into Windows9x. After that games
were not made directly for NEC hardware but hardware
that fell into the Windows catergory.

After you enter the wonderful world of Windows, you
pretty much deal with 3d games, internet, and all of that
western rubbish that was cool back in the mid-1990's.

NECPC model is a DOS base model, that is hardware dependent.
It is not meant to be a Windows/Intel base model. Later
"NECPC" games are really no differnt then Windows games.
This could be further explained by somebody who is orogrammer
savy with NEC computers, if such a persone exsist.

Meaning when you buy an earlier PC98 model ( most likely
5.2 inches,) your dealing strickly with NEC hardware. Anything
after that is entering the wonderful world of Windows.

If you have a 3.5 floppy game it most likely can run via
command-line, without any problems. The same could be said
about CD-rom games. However the CD-rom games would need
to detect the language.

Here is something I am wondering about the Windows 95 in
Japan. I wonder if I could run all my western software, without
any problems that I would encounter with the western installation.
I am curious, and curious to see if my installation of windows 9x
will have no language barrier? I am pretty sure that is the only
thing that holding everybody back, when it comes to computers.

Basically, the PC-98 is an Intel-based machine with a custom GPU (superior to EGA) and a built-in FM chip (YM2203 or YM2608, depending on the model). DOS applications are CPU-compatible, as long as they don't tap into the custom hardware. That mainly excludes games.

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NECstasy | Kaminarimon HES Music Archive | VGMRips YM2608 Archive | YouTube Channel

While the NEC's unique graphics chip makes it so Japanese PC98 games won't games won't run on it, does the other still work? Is it possible for the opposite compatibility? That is, can a PC-98 run american games? After all, if it's better than EGA, then in addition to the special modes unique to it, it should also be able to share the less-good mode known as EGA. Right? It should run American EGA games just fine. Right?

As has already been stated, graphics are not the only source of incompatibility, and superior capabilities do no imply backwards compatibility.

...or no FM chip at all depending on the model.

PC98 and DOS/V (Western PC's) are as different as Mac and Amiga - they are as different as Xbox 360 and PS3. Different architecture. Most beyond that is beyond my understanding, so I am content to leave it at that. The things we can observe on the surface such as the graphic and sound capabilities are just the tip of the iceberg.