The idea came from Hank Mann, who also played police chief Teeheezel in the first film before being replaced by Ford Sterling. Their first film was Hoffmeyer's Legacy (1912) but their popularity came from the 1913 feature The Bangville Police. However as early as 1914 they were being pushed out by Sennett in favour of comedians like Charlie Chaplin and Roscoe 'Fatty' Arbuckle.
The term has since come to be used to criticize any group for its mistakes, particularly if the mistakes happened after a great deal of energy and activity, or if there was a lack of coordination among the members of the group. (famous examples?)
The Keystone Kops also appear in the computer game NetHack, typically when the player steals from one of the shops. They are more dangerous than their cinematic inspiration however; they typically surround the player's character so escape is impossible, and then attack from all directions, while temporarily blinding the player with thrown cream pies.