I think they knew before halfway through that it was not possible to build a practical product, but Apple thinks it's important to stay relevant and appear innovative, so they went along and built it anyway. Maybe that was the intention from the start.
I'm not sure why they created and marketed so many dystopian features though. The part of the demo where the dad played with his kids while wearing the Vision Pro and then watched the playback alone later was disturbing. Same with people talking using the EyeSight feature instead of taking of the goggles and making real eye contact.