It was introduced in Generation II along with the Dark type to balance the Psychic type and Normal type, as both types were great offensively, but the Steel type was made for Pokémon defensively. It was also made for its many resistances as pure Steel types had 10 resistances and Electric/Steel types had 11 resistances along with a Poison-type immunity for both matchups.
Steel-type Pokémon stand out for having great defense against both physical and special attacks, and a large number of resistances. They tend to be heavy and thus have low Speed.
While most Steel types resembles everyday objects made out of metal (such as the Magnemite, Beldum, and Honedge evolutionary line, as well as Ferroseed, Ferrothorn, and Klefki), there are a few Steel types that are biological organisms outfitted with metallic armor (such as Lucario and Steelix).
Steel-type Pokémon draw their powers from light based attacks (mostly Special attacks) due to the glistening properties of metal.
Along with the Rock and Ground types, Steel represents part of the Earth's minerals as types.
They're strong against the Fairy type because, in European mythology, fairies lose their power with metals, also, they are burnt when touching them. Alternatively, it could be due to Clarke's Law, "any sufficiently-advanced technology is indistinguishable from magic."
They're strong against the Ice and Rock types because metal tools are often used to break ice and rocks.
They're weak against the Fighting type because if given hard blows, the steel can bend or break due to its low elasticity hence the phrase "man over machine".
They're weak against the Fire type because steel is a conductor of heat and it can be melted with high temperatures.
They're weak against the Ground type because machines don't work properly when filled with sand, dirt, or mud, and earthquakes destroy metal buildings.
They resist the Bug type because bugs and insects don't have enough force to make any physical change to metals.
They resist the Dragon type because, in medieval legends, knights used steel armors to take on dragons to resist their attacks and be able to kill them. Curiously, the Dragon type isn't weak to them.
They resist the Normal type because most Normal-type moves are Physical, and not so powerful as those of the Fighting type, and steel is hard enough to resist those kinds of attacks.
They resist the Grass type because plants can't degrade metals.
They resist the Flying type because birds can't cause any damage to steel, hence why bird cages are made of metal.
They resist the Psychic type because, since steel lacks life and it's an inorganic material, mind-controlled powers can't hurt them much. Something curious is that Kadabra and Alakazam bend metal spoons with their minds.
Until Generation V, they resisted the Dark and Ghost types because machines don't feel fear since they don't have emotions or feelings, but, from Generation VI onward, they don't resist these types anymore, probably because not all Steel-type Pokémon are machines, also, all of them have feelings, they could have fear at one point. However, they still resist Psychic type.
They're immune to the Poison type because poison doesn't affect things that are not organic.
The Electric type resists them because it is an electrical conductor and their magnetism can repel their attacks. Curiously, they're not weak to the Electric type.
The Water type resists them because water oxidizes most metals. Interestingly, they're not weak to the Water type.
They resist themselves because when you hit something made of metal with another piece of metal, the attacking metal may dent.