Resident Evil Gaiden was officially announced in May 2001 as being under the development of British gaming company M4, Ltd.. They were initially tasked through Virgin Interactive with the development of a Game Boy Color port of Dino Crisis, though Capcom later came to them after finding trouble developing a handheld port of the original Resident Evil with the "HotGen" team, which they soon after cancelled without a publication date. By now, the Dino Crisis port was altered to become an original Resident Evil title, after M4 explained that direct handheld ports of console games wouldn't work. As an original game, Capcom provided Shinji Mikami and Hiroki Kato to plan the game's story out.
In September 2001, Virgin Interactive - the European publisher - released the first official screenshots of Gaiden. At the time, however, a US publication date had still not been officially-disclosed In November 2001 a release date was finally announced for the game; December 2001. Again, no US-release date had been disclosed. It was January 2002 that Capcom finally made the official announcement of its intentions to release the game to the US market, with shipments being made in June.
According to an interview in Retro Gamer, M4 had tried to persuade Capcom to let them change the console to GameBoy Advance, allowing them more freedoms and better graphics (the GameBoy Color only being an 8-bit). However, they had little interest in upgrading the system until much later in development, by which time the publishers (Capcom and Virgin) couldn't provide any more funds for a re-port.
The plot point of Leon joining an underground anti-Umbrella organization was referenced in Wesker's Report. However, the game was never considered part of the series timeline ("canon") by the writers of the series, despite a statement from Hiroki Katoh (who also wrote Wesker's Report) implying as such. At the end of the game, Leon is killed and impersonated by the "B.O.W." Overall, the game is a "what-if" side-story and has no bearing on the canon.
Resident Evil: The Darkside Chronicles further omits the incident aboard the Starlight. When Jack Krauser told Leon to tell him everything about his experiences with zombies and BOWs, Leon only mentioned Resident Evil 2's events.