X.25 started as a research project at England's National Physical Laboratory under the direction of Donald Davies who developed the concepts of packet switched networks. In the late 1960s a test network was started, and by 1974 a number of sites had been linked together to form SERCnet (Science Engineering Research Council Network). As various updates and additions were worked into the system, eventually a series of technical books describing the system were published with different colored covers. Eventually these would become known as the "Colour Books", and represented the first coding of what would eventually evolve into the X.25 standard. SERCnet would later grow and be re-organized as JANET in 1984, which continues in service today, but as a TCP/IP network.
The general concept of X.25 was to create a packet-switched network on what was then the unreliable analog phone system. Much of the X.25 system is a description of the rigorous error correction needed to achieve this, a system known as LAP-B. The X.25 model was based on the entirety of the network itself being internal to the phone companies, with "data terminating equipment" (DTE's) providing endpoints to users that looked like point-to-connections.
X.25 was developed in the era of dumb terminals connecting to single host computers (or alternately, two hosts), so the idea of random access from a single point as in TCP/IP was not considered. The fact that X.25 was even a network was largely hidden to the users of the system, who instead saw what was essentially an error-free modem connection.
As a result, X.25 appeares to be a circuit switched network, even though in fact the data itself is packet switched internally. Host machines were described by a phone-number-like address described in the X.121 Address Format, which consisted of a three-digit country code, a one-digit carrier, and a ten-digit National Terminal Number. Note the use of a single carrier digit, allowing for only 10 carriers per country, at the time considered more than enough. However the US soon had more than ten services, and shortened its country code to "31" to allow for up to 100 systems.
For much of its history X.25 was used for permanent virtual circuits (PVCs) to connect two host computers in a dedicated link. This was common for applications such as banking, where distant branch offices could be connected to central hosts for a cost that was (hopefully) considerably lower than a permanent long distance telephone call. X.25 was typically billed as a flat monthly service fee, and then a price-per-packet on top of this. Speeds were typically 48 or 96 kbps
A number of publically-accessable X.25 networks (Compuserve, Tymnet, Euronet) were set up in the 1970s and 80s to lower the cost of accessing various online services, in which the user would first interact with the network interface to set up the connection. Known as switched virtual circuits (SVCs) or public data networks', this use of X.25 was never terribly popular and disappeared from most places fairly rapidly as long distance charges fell in the 1990s.
A number of systems were developed to directly use the underlying packet nature of X.25, back when it appeared that X.25 would become the single universal networking system. Many of these were "private" applications, but the X.100 e-mail system was also based on X.25 as a transmission layer.
With the widespread introduction of "perfect" quality digital phone services and error correction in modems, the overhead of X.25 was no longer worthwhile. The result was Frame Relay, essentially the X.25 protocol with the error correction systems removed, and somewhat better throughput as a result.
X.25 networks are still in use throughout the world, although in dramatic decline, being largely supplanted by newer layer 2 technologies such as Frame relay, ISDN and ATM and the ubiquitous layer 3 Internet Protocol. They remain some of the only available reliable links in many portions of the thrid world however, where access to a PDN may be the most reliable and low cost way to accessing the internet.