The color RAM in the Genesis video chip is single ported such that at any given time the color RAM data bus either contains the data being read out of it for display purposes, or the data being written into the RAM by the CPU or by DMA.
Outside of the active display area the overscan color can be defined by software. The video chip shows this color for each pixel in the display by continuously addressing and reading out the color RAM data at that address. Most games set the backdrop color to black, as in your picture.
Typically software will use DMA to load transfer palette data from system memory to color RAM during the vertical blanking period which starts right after the last line of the active display area ends. The exact point where DMA starts depends on the software, usually there is some housekeeping and setup to do.
Due to the single-ported nature of the color RAM the video hardware will attempt to show the overscan color during that time but will be interrupted every other pixel by DMA writes. This causes the video distortion you pointed out. The color data you are seeing is the new palette data for the next frame being written into color RAM over a short period of time. It isn't useful for the developers, it's just a limitation of the hardware.
This also manifests in games that do mid-frame color RAM changes such as the water levels in the Sonic games. You will see stationary dots of a solid color that flicker a bit and move up and down with the water level. Those dots come from the CPU writing in new color data and the single-ported RAM being unable to show the normally visible color at that location because the write has priority.
As dual port RAM is expensive there isn't a good solution for this. The TurboGrafx 16/PC Engine has a work-around where the last valid color shown prior to a color RAM write is latched and continuously output until the write finishes. This works well in the overscan area and isn't too bad for mid-frame writes as the pixel affected during a write will be a copy of its neighbor.