I remember a lot from Christmas 1996, the year when I got my Sega Saturn: my mum button-mashing her way to victory in Virtua Fighter 2, my granddad driving safely within the speed limit in Sega Rally. Then there was NiGHTS Into Dreams, Sonic Team's answer to Super Mario 64 and Crash Bandicoot. And what an answer it was: flying through children's dreams as an androgynous purple jester, it was Sega at its most creative - and, perhaps, its most commercially suicidal.

NiGHTS is almost impenetrable at first. You enter each dream as a child and walk around for all of five seconds before NiGHTS blasts out of its prison like a fizzing magenta firework. With the Saturn's dinner plate-sized 3D controller in hand, you've barely got time to enjoy the azure skies whizzing past. Rings explode in all dimensions as you pass through them, NiGHTS leaving a twinkling contrail in its wake, crumpling with the speed of the dash. Each stage is a different dream to be conquered before Claris or Elliot wakes up - the alarm clock's hands grow ever louder as the seconds tick away, chasing you across the level if you run out of time - and in these dreams, any semblance of physical realism gives way to enchanting, impossible fantasy. One minute you're steering a car across the forest, the next careening through a museum made of rubber. In a dream, anything is possible.

There may still be time to order your NiGHTS onesie for Christmas.

Our hero is bound to a two-dimensional plane and must collect 20 blue orbs scattered around each course to free a shinier orb from its squid-like 'Ideya Capture', then return to the start before time runs out. So far, so 90s. So you return to the start, are awarded a 'C' grade for your efforts, and you wonder what you did to deserve that.

Then one night, a purple jester flies into your dreams and flicks a switch in your brain. "What if I just... didn't go back right away, stayed out and earned more points?"

Mario 64 was about exploration and sheer wonder, but NiGHTS was more about mastery: about wringing every last point from each course, tearing through hoops and looping rainbow vacuums around stars until you couldn't prise your hands from the controller. In a cruel stroke of genius, the Nightmaren at the end of each stage award score multipliers, so even the greatest of efforts were wasted if you fluffed the boss at the end. "It's a bit like Tony Hawk's Pro Skater meets Crazy Taxi", you might have said had those games existed at the time, but the truth is that it's incomparable: it's everything happy and lovely about videogames pressed on a disc, played in ten minute bursts of daring and joy.

It wasn't easy being a Saturn owner in the dawning age of the PlayStation - and it was never easy to explain the virtues of NiGHTS or Panzer Dragoon Zwei to a twelve year-old. Sega went from playground dominance to also-ran faster than a Sonic speed run. I'm sure Sega realised this, because in 1996 they released a special present for their loyal Japanese fans: Christmas NiGHTS. It didn't reach the UK until the following Christmas, when it was given away for free with copies of Sega Saturn Magazine.

The British NiGHTS championships were held in 1997. The prize was a year's supply of Twixes. I'm not even joking.

It's easy to deride Christmas NiGHTS as a demo - and for most of the year, that's exactly what it is. Using the Saturn's internal clock, it locks away its secrets until the festive season: you get to play the entirety of Spring Valley, but if not for the label on the disc you wouldn't be able to tell the difference. Then, like an unseasonal thawing, it comes to life. In November, Spring Valley becomes covered in snow (yet is somehow still called 'Spring Valley'). When December arrives, 'Joy to the World' rings out over the opening cut scene. It's Christmas time again! More importantly, it's Christmas NiGHTS time again.

The Ideya Captures are now Christmas trees, the world is covered in fairy lights and baubles, and collectible stars become bells ringing out a festive peal. NiGHTS is clad in a red and white onesie, while a familiar bearded old man can be seen dropping presents from his sleigh if you play on Christmas Day. Sure, it will test your limit of how many times you can listen to 'Jingle Bells' on loop, and it won't convert any Scrooges. But just like real Christmas decorations, it's surprising how emotionally affecting a sprinkle of fake snow and a few cheap lights can be.

After you complete a level, you're invited to "open your presents" by playing a card matching game. At first, you get pieces of concept art - the equivalent of a stale satsuma in the bottom of an even staler stocking - but this is where Christmas NiGHTS reveals its true colours: not as a glorified demo, but as a veritable Cadbury's selection box of goodies.

Link Attack mode takes you to the appropriately frosty peaks of Frozen Bell, where NiGHTS is free to chain scores unhindered by the clock. A 'link' is basically a combo, and NiGHTS becomes Pac Man as you gobble items around the course until your link chain is in the hundreds. Time Attack focuses on speed and accuracy, replacing cognition with muscle memory.

You can make the music sound melancholy, or sickeningly sweet.

Outside of its core systems, NiGHTS' innovations are subtle, but Christmas NiGHTS sheds light on them. Nightopians react to your behaviour as you play, cheering as you vanquish monsters and hatch their eggs, or cowering in fear if you suck their family into a clumsy paraloop. The Nightopian Collection lets you check on your little computer people: this 'A-Life' feature formed the basis for Sonic Adventure's Chao Garden. The Nightopians' memories persist between plays, turning the levels into a cherubic utopia or an uncaring wasteland populated with mutant 'Mepians' depending on how you play.

In practice you'll want to make them happy, because the happier they are, the jollier the music gets. In the Melody Box, you can remix the soundtrack using 'Cybersound', something that sounds comically un-futuristic when you're writing about it in 2013. But the piéce de résistance has to be 'Sonic Into Dreams...' starring Sonic the Hedgehog, making what is unbelievably his first appearance on the Saturn. You're really just playing as one of the kids in a Sonic costume after knocking back a triple espresso, but the boss fight at the end makes up for it, as you square off against a giant inflatable Dr Robotnik and bounce him through an assault course.

The HD re-release of NiGHTS has the Christmas wrapping, but it doesn't include those little flecks of magic that made the original so special. For me, Christmas NiGHTS is as much a Christmas tradition as watching The Snowman or eating Lindor for breakfast. Every year I'd delete my saved game so I could open my presents again: a self-indulgent act, but it's a wonderfully indulgent game, created by a company in love with their own work. You feel that love in every loop and cranny, every feature, every note of the cringeworthy a capella rendition of 'Dreams, Dreams' that plays over the credits.

Christmas NiGHTS was produced to manufacture delight rather than a profit. What could be a better present than that?