Pattern welding was originally developed in Europe by Germanic peoples as a way of reducing slag and impurities from the metal and to homogenize the often erratic carbon content of the iron and steel yielded by early metallurgy. Batches of steel from this era had large areas of very different composition, and by pounding them together the impurities could be evened out. The technique first appears in about 100-200AD, and by 500AD was being used by the Merovingians and then by 600AD by the Carolingians, then becoming common throughout Europe by about 700AD.
However during the Dark Ages the technique was slowly lost, and by 1300AD there are no examples of its use. This is particularily interesting, because it was during this same period that Damascus steel was being produced in the Middle East, and similarities in the markings led many to believe it was the same process being used. Swords made by pattern welding are sometimes said to be Damascus swords, though the process of making Damascus steel is an entirely different technique.
Pattern welding again fell from use in Europe during the 18th century, when English metalsmiths discovered the pudding furnace, and then re-discovered the Indian crucible-fired steels (wootz steel) which were far superior to any mechanical methods. By the 19th century pattern welding had largely disappeared, although today it is used in custom knife making, as a cosmetic enhancement.
The technique is more commonly associated with Japan, where it reached a high degree of development in the 14th century. Today the Japanese katana is still considered by many to be the best sword ever produced, and is so famed that the technique of folding metal to form blades is still thought by many to be Japanese in origin.