This section is not a definitive overview of the history of the free software movement. It focuses on the issues regarding the usage of the common terms.
The free software movement (before it was called this way) started organically from individuals who distributed code they wrote under the Public Domain or what would now be considered open source or semi-open source licences.
AT&T UNIX that started at 1969 was the first showcase for this movement. Several Bell Labs Engineers led by Ken Thompson developed UNIX for their own use, and out of legal restrictions AT&T faced, decided to distribute it to academic organizations and other organizations free-of-charge with the source included. (that licence did not qualify as open-source but it was pretty close). UNIX eventually sported the C programming language, which enabled writing code that would run on many platforms easier, and the UNIX sources included a C compiler that was itself written in C. Around the early 70’s the only computers capable of running UNIX were main-frames and the so-called “mini-computers” so there initially weren’t as many installations as only large organizations could support buying computers to deploy UNIX on.
That changed as integrated circuits, and computers became cheaper and more powerful. Very soon, cheap UNIX-based servers and workstations became commonplace and the number of UNIX installations exploded. [1]
Nadav Har’El has prepared a coverage of the BSDs and early AT&T UNIX history.
The University of California at Berkeley (a.k.a UCB) forked its own version of AT&T UNIX and started re-writing parts of the code, and incorporating many changes of its own. The parts that the Berkeley developers wrote on their own had originally been licensed to UCB and kept as non-FOSS (= “free and open source software”) “All Rights Reserved” licence. The BSD system became very popular (perhaps even more than the AT&T one).
When Arpanet, the predecessor to the Internet was disbanded due to inadequacy, the Internet converted to running on top of 32-bit UNIX boxes such as the VAX architecture by Digital Equipment Corporation (now part of Hewlett-Packard). This caused a merging of the UNIX culture with the Arpanet enthusiasts who exchanged code on the Arpanet, and UNIX programmers started sharing code for various components and add-ons of UNIX on the Internet.
[1] At present day, UNIX clones such as Linux or the BSDs can run on regular Pentium-based computers that can be bought from PC shops. Most PC computers nowadays can out-compete the UNIX workstations of a few generations back. This allow assembling a UNIX server which is much more powerful and much less costly than the past ones, and that suffices for most needs.