UNIX was originally a research project at Bell Labs, and because of agreements AT&T had with the government, they couldn't try to make any real money off of it (they had agreed not to enter the software business). so they ended up practically giving it away. the comercial licenses were reasonably priced, and the educational ones were even cheaper, and best of all, it was really easy for most places (especially universities) to get a source license. the end result of this was a lot of people trading bug fixes and adding there own modifications to the UNIX code, sort of like you see in open source projects today, except it was only open if you had a source license from AT&T.
the CSRG at the university of california at berkely was one of the places that started doing this. in fact, they eventually started packaging up their modifications, and selling tapes with the code on it. sort of like linux distributions do today. there were quite a few releases of this BSD (berkely software distribution) UNIX, and it was very popular.
from one of the releases of the CSRG there came a project called 386BSD, which was put together by a hacker named Bill Jolitz. this was, as you can probably guess, a port of BSD to the 386 processor. unfortunately Jolitz was a very old school developer who didn't like releasing new versions of the code, so after a while, there got to be a lot of people who were asking for updates.
in an attempt to offer a solution, a few people got together to put together a patch set updating 386BSD to something more current. they originally had the blessing of Jolitz, but he backed out at the last minute. they decided that the project had merit even without him, so they continued, naming the project FreeBSD.
the first version of FreeBSD was based off the 4.3BSD-Lite release, and was released in December 1993. it was reasonably successful.
around this time, a lawsuit between Novell (who by this time owned the UNIX trademark and rights to the original AT&T code) and UC Berkely was finally resolved. Novell was pissed that Berkely was distributing code that it felt was legaly its, and Berkely agreed to put out a new, unencumbered release, known as 4.4BSD-Lite. all the users of the previous releases (including FreeBSD) would have to switch to the new release.
FreeBSD had to reinvent itself mostly from the ground up, around this new release. the process was made more difficult by the fact that the 4.4 release did not work on intel, FreeBSD's target platform. FreeBSD 2.0 was released in November 1994, and the prject was finally out from under their copyright problems.
today, FreeBSD is one of the most successful free os's out there. it's an industrial grade unix like os, and is used by such internet heavy hitters as Yahoo, runs parts of hotmail.com, and even holds the record for most ftp traffic served in a single day (ftp.cdrom.com with a single FreeBSD machine and a really good internet connection beat out microsoft.com's server farm).
for more info, check out the following links.
now isn't that far more than you ever wanted to know? good. now the fun stuff.