Instant coffee is, essentially, ground coffee that has been freeze-dried. When rehydrated with hot water, it makes a beverage that is somewhat similar to coffee brewed from ground, roasted beans. It does not require a pot or brewing time, which makes it ideal for travelers or camping, or any time when brewed coffee is not available.
Satori Kato, a Japanese scientist working in Chicago, invented instant coffee in 1901. It was mostly a concept until the Nescafe Company introduced it commercially in 1938. This beverage gained popularity in the following years, and it was included in the C-Ration packets issued in the field to soldiers during World War II.
Instant coffee is produced by placing wet coffee granules on large trays and freezing them. The air is then pulled out of the freezing chamber to prevent condensation, and the chamber is warmed. The resulting grounds are packaged for sale. Manufacturers frequently use low-quality coffee beans for roasting and grinding, which contributes to its generally substandard taste.
In the United States, the 1950s and 1960s were decades of emerging convenience foods and appliances, so it is not surprising that this product was most popular during these years and on into the 1970s. Using this type of coffee, like many other food fads, was considered "progressive." Those who preferred brewed coffee might have been considered a little old-fashioned.
With the advent of drip coffee makers, brewing fresh coffee suddenly came back into fashion. Percolators can be difficult to work with, but the drip machine was easy: people could just put the little paper filter into the basket, pour the coffee into it, then pour water into the reservoir in the back. Ten minutes later, they had a nicely brewed cup of coffee. Those who had practically forgotten what brewed coffee tasted like were buying drip-style coffee pots, and instant coffee began falling rapidly out of favor.
As the "gourmet" coffee trend has established itself, drinking instant coffee is, in some circles, strongly looked down on. This product has its uses in cooking, however. It is good for flavoring desserts such as mousse or filling creme when strong brewed coffee would add too much liquid. This type of coffee is also used in frappes and other beverages that require a coffee taste, but not necessarily from brewed coffee. It's still readily available in most supermarkets, and most cooks keep a jar of it handy, just for these uses.