They're great fun actually. They started out as coaster brakes (pedalback brakes) and people crudely modified the guts so that the brake element of it was removed. So then you had all the benefits of rolling backwards at speed without having to crank backwards, and none of the drawbacks of accidentally catching the brake and sending yourself to the ground backwards.
Companies started making purpose built freecoaster hubs, that were hopefully stronger and used decent materials and sealed bearings etc., whilst at the same time shaving some of the weight out of them. The early ones were well heavy - so heavy that I know vert riders who used to say the weight affected their airs.
The only real drawback with them is the 'gap'. In order to set the hub into coast mode you need to crank backwards ever so slightly. When you want to crank again, you need to pedal forwards through this gap before the drive engages again. It's not much, and its getting less and less, but for vert riders who are travelling at speed, mess that up and you're going for a trip over the bars as you try and chuck a sneaky crank in across the flat bottom.
I don't know the full evolution of em, but I'd say they were a flatland tool first in the early days, then street and miniramp riders saw the fun in them and started using them. I used one for a couple of years in the 90s but took it off when I started riding vert again. If I could afford it, I'd have 2 wheels now and swap em over depending on where I was riding
