The game does indeed drop inputs during slowdown. It drops inputs on an amount of frames equal to the extra frames you see on screen during fireball slowdown. So for example’s sake, let’s say a fireball from Ryu causes 15 extra frames to appear on the screen (I’m sure the actual number is actually much higher), inputs on 15 frames during the entire slowdown (which will be longer than 15 frames, we’re just saying for example that it causes 15 EXTRA frames) will be dropped completely. How the game spaces out which frames it drops inputs on, I’m unsure. You’d have to ask Maj or Rufus. I’m not explaining it very well, and it’s a difficult concept to grasp. It’s similar to how frames are dropped when you apply turbo to SF2–the game is sped up to say 75 frames per second on turbo 2 (unsure of actual number, again), but no common displays can display anything past 60 frames per second, so the game drops frames at a set interval to achieve the desired speed while conforming to display limitations. Similar to that, but in reverse. However, you can still input things normally on “skipped” frames. You simply don’t SEE the frame occur on your screen. So I guess it’s not that similar.
tl;dr: Game drops inputs during fireball slowdown.