In the early days of bicycles, they were direct drive machines. The bigger the size of your machine's wheels, the more ground you would cover in a single pedal stroke. The upper limit to wheel size was determined by the maximum extension of a human leg and the high wheeled Penny-farthings ruled the roads. Rear wheels on these machines kept them from toppling backwards without the rider needing a unicyclist's balancing skill, but the dreaded "header" (when the wheel stuck in a rut or struck an object and the rider flew off, head first) was always a danger. The 1889 American Eagle and Star bicycles addressed the header problem by placing the smaller, non-driven wheel in the front and making that the wheel that steered. Of course it would now be possible to fall backwards off the bike. I would love to think that falling backwards off your bicycle and landing on your bum was the origin of the word "bummer", but the folks who write real linguistic histories don't seem to agree with my theory.
The chain drive (which allowed a gear ratio to be selected independent of wheel size) and the pneumatic tire (which allowed small wheels to provide a smooth ride) led to the rise of the "Safety" bicycle. Bicycles with two smaller wheels of the same size became the norm and the high-wheeled Penny-farthing is now most often seen in museums, nostalgic advertisements and the occasional dandy tweed ride.
Some folks (myself included) just love to tinker with bicycles and over the years, a wide range of machines with various tire and wheel sizes have been tried. This is natural when you think about it. People come in different sizes, they ride bicycles over a variety of surfaces and they use bicycles in different ways. Different wheel sizes and different tires have different properties. No one wheel size will be perfect for every application, but every few years someone discovers (or rediscovers) a certain wheel size and it becomes "the greatest thing ever!"
Path dependence puts a lot of inertia into the manufacturing and marketing loop. If you are going to invent something like a mountain bike you wind up building the early ones out of parts you have: old Schwinn's from the 1940s because they had the big cushy tires, gears from the skinny-tired euro-bikes. Graft them together for Mountain Bike 1.0. And for at least the next decade mountain bikes will have wheels that have a diameter of 26 inches, the same size as those old Schwinn paper boy bikes. But is 26" the best size for a mountain bike? Some folks questioned that and now a bunch of those folks are riding 29ers. Guitar Ted put together a great history of 29ers and it is fascinating reading.
Now I love riding my 29er. The wheels do have more inertia, they roll over some things easier and so forth, but 26 inch wheels have certain advantages as well. In some cases (lots of starts & stops or very twisty trails) smaller wheels might be better. Reasonable people can have reasonable reasons for riding a bike with different size wheels.
On the road bike side of things, some people love, love, love 650B wheels. These are smaller in diameter than the now dominant 700c wheels. You can build a frame to that allows cushier tires or in some cases retrofit this wheel-size into a 700c frame (you need to find some longer reach brakes) and then you can get the cushy tires and your life will be wonderful. Or so the 650B folk tell me. It's the same sermon the 29er folks preach but going a different direction. And I've also heard from some folks that actually 650B is the perfect mountain bike wheel size as well. My pal Beth has a great heretical rant about 650B wheels.
I actually think that there is no magic, perfect wheel size. It's not magic, it's physics and physiology and psychology and something about different horses for different courses. My 29er is a great bike and I like winding the big wheels up to speed and letting 'em roll down a long, rugged trail. But I still have a 26" wheeled mountain bike and by golly it's lots of fun and I ride it a bunch. My 16" wheeled Dahon folder is light and fast and the little wheels spin up in an instant. It is my favorite bike for many rides and it lets me buzz around town like a hummingbird. The little wheels are quick, but it's not as fast on the long haul as a big wheeled bike.
Some people seem to think that everything is evolving toward some perfect end, but from what I've seen the world doesn't work that way. We have whales and hummingbirds, turtles and cheetahs. And as long as we have bicycles, we'll probably have them in a variety of shapes & wheel sizes. I think that's pretty cool. Heck, it's damn near magical.
Keep 'em rolling,
Kent "Mountain Turtle" Peterson
Issaquah WA USA