It is not really that bad of a phone at all! It has the same processor as the one in my Moto G. The lumia 640 also has the same processor! It is not the fastest out there, but it is not unusable or horrible. Of course, there are some serious compromises made to reduce the price so much. There is no front facing camera, if that is important to you, don't buy it. Personally, I have never used it, I don't take selfies or video chat. The 512 RAM may be a bit annoying. Apps often resume a lot. If you like to multitask a lot, then this may get frustrating. The rear camera is decent, not great, for a few shots here and there, it will suffice. The screen is lower res, and yes you can see the pixels, but again, not that bad at all. It has a higher ppi than my 2012 Nexus 7, and I still use that to this day. No issues.
I think this is a phone for people who just don't have the budget for more expensive phones, or people who just want a no nonsense smartphone, or people who want to try out windows phone 8.1. It is by no means a terrible phone. You just need to be aware of the compromises that were made to make it so cheap.
I have a Moto X 2014 PE, and it is vastly more powerful with a better camera, sharper/bigger screen, etc. I am also perfectly happy with lollipop as well, no lag, no problems. Just smooth sailing. I bought the 635 to mess around with windows phone 8.1. I find myself using the 635 more often than my Moto X!
That being said, with the 640 now in the picture, I would probably go for that IF you like a larger size, want a better camera w/ flash, a front facing camera, a bit sharper screen, 1GB RAM, etc. A gig of RAM will always be better than 512MB. If it is just a phone you want to tinker around with and you have another main phone, the 635 is not a bad buy.