The 28-year-old Everton full-back remained in hospital in Dublin on Monday two days after undergoing surgery to pin the tibia and fibula in his right leg following a challenge by Wales' Neil Taylor during the 0-0 draw at the Aviva Stadium.
Asked about Coleman during his pre-match press conference ahead of Tuesday night's friendly against Iceland, manager O'Neill said: "I think he's just beginning to come to terms with it.
"I saw him yesterday and he's still pretty down about it. He's not in as much pain, the operation went very well and it's just a matter of coming to terms with it."
The damage to Coleman's leg was so gruesome that no television replays were shown during the game.
In the immediate aftermath of the incident, O'Neill had to act quickly to send on Cyrus Christie as a replacement as his side pushed for victory, but he admitted his emotions were mixed.
He said: "The first reaction is that you know you have lost a great player for a start, and you know the sort of pain that he's going to be going through, obviously the immediate pain and then his recovery.
"It's a major blow, not only for the player, but obviously for his family, people who were at the game watching that.
"But as Seamus mentioned to me the other day, he just said that it has happened now, he can't do anything about it and it's what he does now in the next few months that is very, very important."
O'Neill is confident his captain will make a full recovery having seen Henrik Larsson fight his way back from a similar injury during his time at Celtic.
He said: "Before I went to Celtic, about five or six months before that, Henrik Larsson had a very serious injury and he recovered magnificently and the injury didn't bother him again from then until the end of his career, so players have recovered.
"Great players have broken their legs and come back, and Seamus, obviously it's very early for him to start considering all those things, but he is positive.
"Naturally, as I mentioned earlier at the start, he's down, as he would be as the realisation that he is going to be out of action for quite some considerable time has dawned on him, so those type of things don't just take five minutes to get over.
"But he's very strong, he's got a lot of good people around him, his family is very, very strong as well and he is positive that he will be back and as good as ever."
Coleman's misfortune struck just seconds after fellow defender John O'Shea had been left bloodied by a late challenge from Gareth Bale which earned the Real Madrid star a yellow card, although many onlookers felt he was lucky not to be dismissed, as Taylor subsequently was.
O'Neill said: "I thought both challenges when I have seen them back have been very, very poor. Very poor indeed."
