So essentially the end goal in fighting games is to hit the opponent until they die, right? It’s important to realize though, that this is only the END goal. It isn’t what you should be focused for the entire match. For each situation you find yourself in, you really have a different smaller goal. The same can be said about neutral!!!
Your goal when it comes to neutral is to give yourself an advantage in some sort of way. Maybe this DOES mean hitting your opponent (as you get a health advantage), but often times it does not. There’s a lot of games where getting an advantage can mean being really close to the opponent, making them block, being in the air, etc. This actually can change on a character to character basis to for the same game. So to understand neutral, you’d want to understand what it means to be in advantage.
There are two main types of advantage that you’ll take advantage in neutral. Spatial Advantage and Temporal Advantage.
Spatial Advantage occurs when you character is in spatial area they excel at. If you’re character has long range attacks, spatial advantage for that character may be the range where you can hit them, but they can’t hit you. If your character has a really strong throw when up close, Spatial Advantage might be when they do reach that close distance.
Temporal Advantage occurs when your character can act before the other character. Imagine the enemy attacks but they completely miss their mark. This gives you temporal advantage. As the enemy is still reeling back in recover for their attack, you have extra time to do whatever you want to. You might take advantage of temporal advantage by creating spatial advantage, or trying to open up your opponents guard.
Temporal Advantage and Spatial Advantage are very intertwined. Sometimes you have both Temporal Advantage and Spatial Advantage. You might find that you’re an advantage in time, but not in space or the other way around.
Tohno Shiki (on the left) has a really long range air button. Tohno Akiha’s attack doesn’t have nearly as much range. She might want to avoid being in the air at the same time as Shiki because he will have Positional Advantage 
v-No.13- from Blazblue Central Fiction is at advantage when the enemy is as far from her as possible. She has strong attacks at long range, so she finds ways to keep the enemy away from her. 
Here No.13’s sword attack forces her enemy to block, but No.13 is still free to act. She is able to run up to her enemy because she has Temporal Advantage 
One of the strongest positions in most fighting games is to be really close while maintaining Temporal Advantage Even though No.13 is strong at long ranges, she might still want to try a close range throw. She is able to do this because she had Temporal Advantage. 
King of Fighters’ Iori has a move called “Shiki Yamabarai”. It is fire ball that might give him an Temporal Advantage if the opponent blocks it at a long range. 
However if Kensou predicts the fireball he can perform a hop over it. Now Kensou has Temporal Advantage. 
Iori might still be able to block Kensou’s elbow. However, when Kensou lands Iori will still be stunned from blocking the elbow attack. This gives Kensou Temporal Advantage. In 2D fighting games, most attacks while falling from a jump give you Temporal Advantage.
Fighter Fundamentals 