It seems Google was so impressed with Asus' demonstration of the Eee Pad Memo, the Tegra 3 $250 tablet that they announced at CES, that they went directly to Asus and asked them if they could make a similar Nexus tablet for them, but with an even smaller price. Apparently, Asus agreed and they are going to launch this tablet in May for $200 or a little more.
I think they should be able to make a $200 tablet by then, with a decent enough display, 1280x800 resolution on the 7" screen, a quad core Tegra 3 processor, and probably only 8 GB of internal storage, but still plenty of storage for most people. Initially, Google considered another Taiwan-based manufacturer, like Acer or HTC, but HTC didn't have the proper R&D set-up, and HTC don't want to ruin their brand image with $200 devices - either that or they can't really make one this cheap. After all, HTC's tablets still cost around $700-$800, even the new ones and after the market failure of the Motorola Xoom with that kind of pricing.
But it's good news that Asus is making it, and if it's good for the price, and Google does the right promotion by advertising the kind of Google content people can access on this tablet, I think it will be pretty successful. It remains to be seen if it will be anymore successful than the Kindle Fire, and the reason for that is because most people bought a Kindle Fire because they thought it's like an e-reader, but with a color screen, and they knew Amazon is the leader in the ebook market.
Google on the other hand, isn't very known as a content source, except perhaps for videos with Youtube, but people expect to see Youtube on any device anyway. Google will have to promote that they have a 100 times more apps than Amazon, but also a lot of books and movies. At the very least, it will hopefully start making tablets cheaper and gain Google more market share in tablets.