"Fansubs originated during the explosion of anime production during the 1980s in Japan. Relatively few titles were licensed for distribution in foreign countries. This made it difficult for anime fans to obtain new titles. Some fans, generally those with some Japanese language experience, began producing amateur subtitled copies of new anime programs so that they could share them with their fellow fans who did not understand Japanese. In an attempt to avoid ethical and legal problems, fansubbers adopted the practice of distributing their works at zero profit.
The first distribution media of fansubbed material was VHS tapes. Such copies were notoriously low quality, time consuming to make, expensive to produce, and difficult to find. A limited number of copies were made and then mailed out or distributed at local anime clubs. Fans could purchase fansubs at a modest cost or could contact clubs who would record the material on their own blank video cassettes.
However, with the advent of widespread high-speed Internet access, desktop video editing, and DVD ripping, the original process has largely been abandoned in favor of digital fansubbing (digisubbing) and electronic distribution of the resulting digisubs. This has allowed fansubbing to transform from a slow and tedious task that generates a low quality preview of an attractive show to a cheap, easy, and quick way to create a high quality and high availability alternative to an only-slightly-better quality official DVD copy, although some groups release HD quality fansubs."
http://en.wikipedia.org/wiki/Fansub