Papyrology as a systematic discipline dates from the 1890s, when large caches of well-preserved papyri were discovered by archaeologists in several locations in Egypt, such as Arsinoe and Oxyrhynchus. Leading centres of papyrology include Oxford University, Heidelberg University and Columbia University.
The following text is from the website of the Columbia University Advanced Papyrological Information System (see link below)
Papyrus was the most important writing material of the ancient world and perhaps ancient Egypt's most important legacy; alongside it were used other (often cheaper) materials, like wood and clay (broken pottery sherds with writing are called ostraca). On these materials were recorded everything from high literature to the myriad of documents and other communications of daily life. About one in ten of those studied to date is a fragment of literature, either a far more ancient witness to a work known otherwise from medieval manuscripts or a text hitherto lost in antiquity.
From the literary papyri the modern scholar learns about the state of literary texts in antiquity before errors were compounded in the manuscript tradition of the Middle Ages. From among these papyri the modern world has recovered such important lost works as the lyrics of Sappho and the Paeans of Pindar, the comedies of Menander, the Mimes of Herodas, the orations of Hypereides, the Constitution of the Athenians by Aristotle, and early Christian and Gnostic works which once competed with the New Testament.
Nine of ten published texts are private letters or documents of every conceivable sort: legal and business papers, government regulations, property records and transactions, petitions to high officials, tax and rent receipts, bank deposits and payments, and farm and crop reports. As such, these documentary papyri differ little from modern archival material; except for their usually fragmentary nature and extreme antiquity, they reflect the quotidian affairs of government, commerce, and personal life in much the same way that modern records do.
From the documentary papyri were born the new fields of social, economic, and administrative history, which have all but displaced the older histories of kings and battles. The papyri (using the term to encompass the other materials) are thus the source of a large part of what we know about many aspects of antiquity, particularly those concerned with economic life, social relations, cultural interaction in a pluralistic society, and daily life.
This material is self-evidently of central importance for classical history and literature, but it is also of immense importance for other areas. For example, the papyri have transformed our understanding of the development of the Greek and Latin languages in everyday use, a matter of importance not only for historical linguistics but for the way scholars read Jewish and Christian sacred texts. From the papyri, moreover, have come abundant new works of religious literature not only for Judaism and Christianity but also for traditional Greek and Roman cults, for Manicheism, and for the early history of Islam.