If for example next generation ninty systems release in 2016 and Sony and Microsoft wait until say 2021 we could see ninty releasing their next one even before that. So how will gens be counted if ninty start releasing them at a much faster rate than the rest?

All hypothetical of course so please play along.

I guess maybe a little? I think Nintendo's next gen system will come out in 2017, with the PS5/XB2 coming out in 2019, so that could be a little confusing. Not as extreme as your example, though.

Well, this have already kind of happened with Sega. They released the SG-1000 the exact same day as the Famicom, then released the Master System and then the Mega Drive before Nintendo released the Super Famicom.

If that becomes the case, new Nintendo console will be Gen 8.5

If Nintendo goes that route they need to be careful because it shows their products aren't as strong or lasting of an investment if not done right.

Well 2016 is too early for their next home console. I would think holiday 2017 is a likely bet, as I think they may be keen to move on from the Wii U. If Nintendo were to release a console at that time, it is unlikely to affect Sony and MS a great deal. Nintendo is removed from that war at this point, and the core Nintendo base will be there to buy the new console whenever it releases.

It depends how Nintendo console is comparable.

If its just a slightly beefed up PS4, I don't think anyone would care to count it as a seperate generation. Factually speaking there is no universal generation, I think its specific to each hardware developer and also to third parties.

Good point 

That would be quite interesting and I'd honestly like to see this.

I doubt it will be 2021 I reckon Microsoft will launch 2018, Nintendo 2017 and sony 2019, as all consoles are all ready out of date and they ain't going to squeeze much more out of them