I am not a doctor. I am an EMT who was in paramedic school but had to drop out to have triplets. They were born six weeks early and came home on heart rate monitors. So I have some training and experience. But I'm still not a doctor, and this just the way I understand the issue.
Newborn heads are incredibly large relative to their bodies. They do not have the musculature to support it. So it is very easy for infants to experience hyperflexion of tissues and the spine and cause brain damage. This has been asked on stackexchange before.
A newborn is unable to keep their airway open on their own even while awake. If an infant's head is not properly supported the primary concern is that the airway will close and they will not be able to cry to tell you there is a problem. Newborn heart rates tend to decline rapidly with loss of oxygen (called "A's & B's" or apnea and bradycardia), and so they can go into cardiac arrest. I've watched this happen several times while my babies were in the NICU and it's very scary. It's why some parents buy breathing or motion monitors. And that's the only way I got what little sleep I did.
Most of the airway issues are with laying them down. You want to make sure the nose is pointing up if they are on their back or that they are on their side. You may need to place something under their neck to hold it up and keep the airway open.
A seated baby's head can roll forward and cutoff the airway. This is why preemies are sometimes tested in carseats and there are carseats specifically made for preemies. In an ambulance preemies and infants are transported lying down to prevent this.