The top three Google predictive results for "why is prom..." are:
"why is prom important?"
"why is prom so special?"
"why is prom so stressful?"
Prom supposedly is important and special because it's the Best Night of High School; the chance students who have resided for the previous four years on the bottom rungs of the social ladder have to magically step into the spotlight and shine, sometimes with just removal of glasses; the night when teen couples might disrobe and try out intercourse for the first time.
Of course, there's a decent chance none of these things will happen: prom probably won't be the best and most memorable night of high school (at least in my lackluster experience). Nonetheless, teens have been buying that idea of Prom As Everything about as long as prom has existed in American high schools. For instance, in 1954, American Girl magazine describes dressing up for prom in fairytale terms: "Look now! There really is another you in the mirror. A you that is practically exuding a subtle new fascination, a wonderful femininity."
So how did all of this prom fever start? Rich folks are to blame, sort of.
Promenade, which would later be shortened to prom (probably by some hip high schoolers), started out as co-ed college banquets in the late 1800s in the northeastern United States. The first -- or at least the most-cited-as-the-first -- written record of it was made in 1894 by Amherst student Dwight Morrow discussing his invite to Smith College's prom in his journal. From there, the tradition of a formal, co-ed get-together for graduating seniors trickled down from higher education to high school, where it really became a middle-class response to the upper-crust tradition of debutante balls and coming out parties for well-heeled young women and men to meet and possibly canoodle and share their families' wealth in holy matrimony down the road. The formal dinner and dance was seen as a prime way to teach middle-class teenagers proper social skills, as evidenced by a 1935 article in Parents magazine describing prom as a warm-up for teens' "gracious manners and good taste."