The number of data and formatting bits must be pre-agreed by the communicating parties.
This format is derived directly from the design of the teletypewriter, which was designed this way because the electromechanical technology of its day was not precise enough for synchronous operation: thus the systems needed to be re-synchronized at the start of each character. Having been re-synchronized, the technology of the day was good enough to preserve bit-sync for the remainder of the character. The stop bits gave the system time to recover before the next start bit. Early teletype systems used five data bits, typically with some variant of the Baudot code.
Asynchronous start-stop signalling was widely used for dial-up modem access to time-sharing computers and BBS systems. These systems used either seven or eight data bits.
The most common configuration used was (and still is) "8N1": eight bit characters, with one stop bit and no parity bit. Thus 10 bits are used to send a single character, which has the nice side-effect that dividing the signalling bit-rate by ten results in the overall transmission speed in characters per second.
The alternative to asynchronous start-stop was the use of synchronous protocols such as HDLC.
Asynchronous start-stop is still used to communicate with modems for many dial-up Internet access applications, using a framing protocol such as PPP to create packets made up out of characters. The performance loss relative to synchronous access is negligible, as most modern modems will use a private synchronous protocol to send the data between themselves, and the asynchronous links at each end are operated faster than this data link, with RS-232 flow control being used to throttle the data rate to prevent overrun.