In the mid/late 80s, Microsoft and IBM were still working together in the desktop OS market. Both realized the limitations of the DOS line: DOS was real-mode, had no protected memory, and it couldn't multi-task.
We all remember the 1994/5 ads on TV for OS/2 Warp, and it looked as if OS/2 would be an alternative to Microsoft's products. OS/2 could run Windows 3.1 and DOS programs, in addition to native OS/2 programs. In fact, it was a "better DOS than DOS, a better Windows than Windows." For this reason it was hard getting companies to write OS/2 native programs, and Windows 95 was released just late enough to make OS/2 incompatible with it; all of a sudden OS/2 was being shut out of the home market. IBM's failure to market OS/2 properly didn't help; often, when buying a new IBM PC, OS/2 wasn't even an option!
OS/2 is not (yet) dead. It is still used in up to 90% of the world's ATMs. Until a few years ago IBM sent out new versions for desktop users. IBM has stopped OS/2 development and it has been rebranded as eComStation by Serenity Systems; businesses, not individuals, comprise the target market.
OS/2 has many attractive features. It is a 32-bit, protected-mode, multi-tasking operating system, and is very stable. It is object oriented, and has an advanced scripting language called Rexx. Java support was added, and recent versions of OS/2 also include built-in speech recognition. The Work Place Shell (the graphical environment) not only has a consistant look and feel, it also allows the user great flexibilty in customizing how it looks. The Odin project allows more recent Win32 (Windows 95, NT, XP) programs to run under OS/2.
OS/2 has the whole range of Windows 3.1 programs open to it, in addition to most DOS programs, and a whole range of OS/2 native applications. In terms of the Internet, OS/2 is well suited to being networked, and even modern software, such as Mozilla, is available for it.
Due to IBM's retreat from the home/desktop market, there are some glaring gaps in the software offerings for OS/2. For example, you won't find the newest, Windows 95 games for OS/2, and OS/2 doesn't have much in the way of 3D support. Plus, you can't expect much help from IBM—Serenity Systems is the place to look, now. Older versions of OS/2 might not work very well on your new desktop (or laptop) machine.
OS/2 is a solid alternative to Windows (95 and NT, for example) on older x86 machines. In particular, if you have an old IBM PS/2, OS/2 might be the right thing for it. A PowerPC port of OS/2 existed briefly. Perhaps one of the most convincing reason to install OS/2 on an older machine is its advanced boot manager. If you are planning on running several alternative OSes, as they mentioned in the November, 1997 issue of boot: "'It's worth buying OS/2 just [to] get the boot manager functions, which are the best in the world.'" Below are some further links to sites about OS/2: