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History:

Original layouts for the first few mechanical typewriters were in alphabetical order (ABCDE etc.) but the frequent jams suffered by experienced typists forced the manufacturers to change the layout of the letters, placing keys that are often pressed in a sequence as far as possible from each other. This allows to engage the second printing bar of the typewriter before the first falls down, increasing the speed of the mechanism
Equal distribution of the load over most of fingers also increased the speed as the keys of the mechanical typewriter are more difficult to press.
The calculations for keyboard layout were based on the language being typed and this meant different keyboard layouts would be needed for each language. In English speaking countries for example the first row is QWERTY, but in French speaking countries it is AZERTY. Though mechanical typewriters are now rarely used, moves to change the layout to increase speed have been largely ignored or resisted due to familiarity with the existing layout among touch typists.

Frank Edward McGurrin, a court stenographer from Salt Lake City who taught typing classes, reportedly invented touch typing. On July 25, 1888, McGurrin, who was reportedly the only person using touch typing at the time, won a decisive victory over Louis Traub (operating Caligraph with eight-finger method) in a typing contest held in Cincinnati. The results were displayed on the front pages of many newspapers. McGurrin won US$500 (equivalent to $11,400 in 2007 USD) and popularized the new typing method.
Whether McGurrin was actually the first person to touch type, or simply the first to be popularly noticed, is disputed. Speeds attained by other typists in other typing competitions at the time suggest that they must have been using similar systems.
In 1889 Bates Torrey coined the words "writing by touch" in his article. In 1890 Lovisa Ellen Bullard Barnes defined the words "write by touch" in her book as follows:

To learn to write by touch, that is, with only an occasional glance at the key-board, sit directly in front of the machine. Keep the hands as nearly as possible in one position over the key-board.

The most common other form of typing is search and peck typing (or two-fingered typing). This method is slower than touch typing because instead of relying on the memorized position of keys, the typist is required to find each key by sight and move fingers a greater distance. Many idiosyncratic styles in between those two exist — for example, many people will type blindly, but using only two to five fingers and not always in a systematic way.

"Do you not find," he said, "that with your short sight it is a little tiring to do so much typewriting?"
"I did at first," she answered, "but now I know where the letters are without looking."

Advantages:

Speed

Touch typing training can improve any individual's typing speed and accuracy dramatically. The accepted average typing speed  is 40 WPM words per minute, professional career typists can exceed 100 WPM words per minute repeatedly and continuously (secretarial, data entry, etc). Every individual learns at a different pace, and routine practice is required to maintain a high typing speed and accuracy.

Reduced switching of attention

A touch typist does not need to move the sight between the keyboard (that is obscured with fingers and may be poorly lit) and other areas that require attention. This increases productivity and reduces the number of errors.

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