The Mark III was released two years later than the Famicom, and has slightly more powerful graphics hardware. But it still has worse sound capabilities. So Sega developed the FM unit for those customers who would be happy to pay more for superior audio. It adds in a Yamaha FM sound chip for Mega Drive-like sound effects and music.
The FM unit sits snugly on the recessed top part of the console, and plugs into the front expansion port.
A cable extends out the back of the FM unit to capture the console’s video and regular audio.
It plugs into the AV out, using five of the eight pins (so no RGB available)
You then attach your AV cable to the FM unit’s AV out, which passes through video, regular audio and adds in the FM audio for supported software.
Yes, supported software. Games had to be specifically coded to support the FM unit. This was displayed on the front of the box on the bottom left, see my copies of Kenseiden and After Burner below.
Is it worth it? You bet! It makes your Segamaku sound like a Mega Drive! Definitely a worthwhile upgrade, even though working FM units regularly sell for up to 10,000 yen these days.