I had dinner with the arXiv creator once (https://en.wikipedia.org/wiki/Paul_Ginsparg https://en.wikipedia.org/wiki/Paul_Ginsparg). What I understood is is that

I had dinner with the arXiv creator once (https://en.wikipedia.org/wiki/Paul_Ginsparg https://en.wikipedia.org/wiki/Paul_Ginsparg). What I understood is is that before the arXiv, all "good" universities would each mail each other copies of preprints, and so researchers there would have access to the newest research developments. Eventually, they'd get published, but that takes a while, so anybody not in this circle would be far behind and have a hard time being relevant in his field (theoretical particle physics). So the arXiv was a more modern, scalable, democratic replacement of what was already popular within the culture of the field.