It was an act of desperation. People wouldn't read docs or sanely named information, so people would jokingly title something "readme" or "important" or "mefirst". It was kind of seen as pathetic originally, to have to be so bad at your job you needed to include a README file. Those were much more arrogant times. I still remember seeing repos that actually said it was a good idea to have a README file in them and being bemused.

Now I love them, but I've grown to love simple, "dumb" solutions.