You've pretty much got what they are... basically, it's different if you're talking about the TCG or the VG.
It started with the videogame: let's take Pikachu, just as an example. Pikachu and Raichu both appeared in Gen I, but then Pokemon decided to invent Pichu later. So since they want to keep the egg mechanics the same (where you can have an egg with Pikachu in it still), they made special requirements (usually one of the Pokemon has to hold an incense) to breed to a Baby.
When it transferred to the TCG (which I'm assuming you're talking about because of the wording), they decided to make it basically the same - Baby Pokemon COULD evolve into their respective Basic forms, but you can still play the Basic without the Baby.
At some point that changed and now Babies simply cannot evolve into their Basic forms (Pichu to Pikachu, for example) for whatever reason. That's why it has no "evolves from Pichu" on Pikachu cards - the mechanic was just changed.
To answer the question in the title of the OP, I guess they just decided they wanted Baby Pokemon. Maybe they thought Pichu or something would look really cool, so they just sprung after that idea.
