A pixel is the smallest building block of what a screen displays. Pixel art is the arrangement of these blocks on a pixel-by-pixel basis to make images and animations intended for screen display.
It would probably have been ideal if games back in the day could all have been super smooth 3D graphics or hand-drawn cartoon lineart with hundreds of frames of animation, but computer memory was really limited then. This meant that the programming and the art had to be as optimized as possible.
Part of the allure of this art style, at least for some, is the challenge of working within the limitations that game makers faced when making the games we grew up with. The 8-bit NES system for instance had a series of restrictions: only 54 pixel colors to choose from with only 25 colors usable on screen at once (a background color, four sets of three tile colors and four sets of three sprite colors), with sprites at either 8x8 or 8x16 pixels, and a total screen resolution of 256x240 pixels.
Because it's cool. Even though technology today allows for highly detailed, RAM-heavy 3D graphics on high-definition screens, with 8 or 16 bit graphics not seen nearly as much as it was in the 1980s and 90s, pixel art is still an established art medium with a huge variety of unique sub-styles.
Even though its role in pop culture is mostly nostalgia, pixel art is still in use today. It's the sharpest, most crisp art you can produce on a screen. It optimizes graphics for handhelds, it makes consistent animation easy, and it's even helpful for modern uses like readable icons for web pages or GUIs.
Because of the internet, pixel art from old videogames (like sprites, backgrounds and even animations) can be captured and translated exactly as it appeared in-game into .GIF and .PNG formats and spread around easily to fans.
Collecting game sprites from your favorite series can be like collecting baseball cards from your favorite teams. You can have a whole library of sprites and animations on your hard drive that take up very little space.
If you're the artistic type, pixel art is very accessible and easy to get into. All you need is a simple image editor like MS Paint. Working with pixels is like playing with digital Legos. Every pixel is a detail that you have full control over, and can undo and change easily at any time. You can even work over professional sprites and edit them around into something new — like turning a Megaman X sprite into an AstroBoy sprite — with very little work.
And for as small as pixels are, there are countless styles you can work in: overhead RPGs like Chrono Trigger, more realistic Street Fighter, cartoony Super Mario World.. practically every game made had its own style. You can even make your own.
As hobbyists spend more time working with pixels, they find the process relaxing and the results rewarding. It's like how people spend time knitting because the process itself is soothing and the end result is just secondary.
Pixel art is so basic an art style that it's very adaptable. Not just to be found on computer screens anymore, pixel art is such a part of culture that it shows up in stitching, wall decorations, bathroom tiles, and even as skins on 3D meshes.
But in the end, pixels belong to the display screen, and as long as there are indie game makers who need to work within certain limitations, or gamers who enjoy the old classics, or programers who like to dissect and modify games with MUGEN or other custom game engines, or artists who have an interest in this simple and very unique art style, then the pixel-pushing will carry on, the fans will pass it along, and 2D will indeed never die.
The beginnings of pixel art go back to the early 1970s but didn't register on pop culture until Atari's Pong carved a market for arcades and became the hottest selling Christmas gift of 1975.
Two years later, the Atari 2600 home console was released.
In 1983, the Famicon was released in Japan. Meanwhile, the Commodore 64 was released, with its unique way of displaying pixel art that today is a popular sub-style.
In 1985, Tetris came out for the PC, and the next year, the NES arrived at U.S. markets, along with competing Sega Master System and Atari 7800.
In 1989, Nintendo released the handheld Game Boy while Sega debuted the 16-bit Genesis, NEC released the 16-bit CD-based TurboGrafx-16, and Atari produced the color handheld Lynx.
From here on out, technology begins to make 3D easier and affordable for game developers, and while pixel art continues to appear in many console and arcade games of the 32 and 64-bit era, companies start investing in 3D development as players flock to the latest breakthroughs.
1993: Atari releases the 64-bit Jaguar.
1994: In Japan, the 32-bit Sega Saturn and Sony PlayStation get released.
1995: Sony brings the PlayStation to the U.S. and Nintendo releases the Nintendo 64 in Japan.
1996: As the powerful Nintendo 64 comes to the U.S., Japan starts to see new uses for old technology: the Tamagotchi virtual pet, a technologically and visually basic keychain-game, becomes an overnight pop sensation, suggesting that modern gaming technology doesn't mean certain death for pixel art.
1997: The release of Castlevania: Symphony of the Night on the Playstation, a system build primarily for 3D gaming, reminded fans of what they loved so much about pixel art, while Capcom releases the visually astounding Street Fighter 3.
1998: Sega releases the 2D-friendly Dreamcast in Japan, and allows for remarkably accurate conversions of games like Capcom's X-Men vs Street Fighter and Street Fighter 3.
2000: The Sony PlayStation 2 launches.
2001: Both the Microsoft Xbox and Nintendo GameCube launch, while Sega announces that it will no longer manufacture hardware, and Nintendo releases the portable GameBoy Advance -- a system that lets SNES-level pixel art bask in the mainstream spotlight one last grand time.
2004: Nintendo releases the portable Nintendo DS.
2005: Sony releases the handheld, high-resolution PSP, and Microsoft unveils the XBox 360.
2006: Nintendo releases the Wii, and Sony also debuts the Playstation 3.