I thought this was a pretty cool article courtesy of Wikipedia:

Leet finds its base in written communication over electronic media. Most simply, it has evolved as a way of forming exclusive cliques in online communities, notably Bulletin Board Systems and online multiplayer games (see Examples of Leet in videogaming).

It has been noted that the mechanism began because early online communication was quite slow, and people sought ways to shorten messages, so that they could be delivered more quickly. A similarly probable answer is that early users of BBS systems and other online boards were not skilled typists and thus shortened words so they could get their message across faster.

Some believe that the origin involved using a dynamic cipher, so that only experienced users would be privy to the message [citations needed]. As a result, newcomers would be excluded from communications with those who had defined (and continued to evolve) the cipher.

When modem use became widespread and a large general audience gained access to online communication systems, these new users did not understand the abbreviations commonly used by the experienced users. These experienced users became known as “elite users,” abbreviated as leet.

Primitive Leet was generally much less elaborately substituted than modern forms. Typical transpositions included:

f / ph (“fone phreaks”)
z / s (generally only in the final position, usually in plural words i.e. phi1ez, but not za1ezman)
1 / l (usually only once in a word, i.e. 1iar)
c / k (krap as opposed to crap, and cill in place of kill)—sometimes x is substituted instead, giving xrap or the like
s / c (sex as cex)
0 / o (n00b instead of noob)
For users of the Commodore 64 or the Sinclair ZX Spectrum, communities began to use PETSCII pictographic characters as letter substitutes. Over time these tendencies of replacing letters became increasingly exaggerated.

Another early phenomenon was the prefix “k-” (for kilo) to some words, the most common and enduring example being k-rad. The roots of the term k-rad are most likely mocking of the mid- to late-1980s use of the term radical (compare extreme of the 1990s), which was itself abbreviated to rad. V. was also used, as an abbreviation for very. This may have come from the v. in modem protocols, possibly via v.fast, although it's also a longstanding usage in British English so may have spilled over into American leet via increased international communication.

As an example, the group Journey produced an album titled E5C4P3.

Other common usages include:

prOn
Pwnd
Kekeke
nOOb

After the emergence of Leet on bulletin boards and other non-real-time communications media, Leet found a sort of renaissance in real-time protocols such as Internet Relay Chat (IRC) and Instant messaging (such as AIM).

Through this process, Leet acquired an increasingly expanding vocabulary. As Internet slang grew (such as w00t, teh, and so on), it was absorbed into Leet (and subsequently enciphered). Along the way, additional languages began to be enciphered with Leet-like processes (see krieg, ist below). In this regard, Leet resembles a creole language, a pidgin, or mixed language.

In addition to the broader vocabulary, Leet's ciphers became even more complex and dynamic. Where originally, a one-to-one relationship existed between the source and cipher text (such as E → 3), newer one-to-many and many-to-many ciphers began to emerge (such as A → @, 4, and so on).

Several outside sources have been instrumental in the formation and evolution of Leet. Primarily, the exclusive nature of enciphering text in communities drove this evolution. Additionally, in online communities where certain text was forbidden (such as swearing), newer, more clever ciphers had to be created to prevent software limitations from hindering communication. The same sort of evolution has been spurred by e-mail content filters which may prevent a user from including certain words in their written communication. As such, in addition to the socially exclusionary properties of using a cipher, it may be said that Leet is used as a means to defeat regular expression engines used for matching content in written communication.

More recently, the exclusivity of Leet has been reduced. As Leet has become popular in the common Internet vernacular, many users who would previously have been excluded by enciphered text have caught on to the cipher. Even highly irregular ciphers (see below for a full discussion of various ciphers) have proven to be easily decipherable by users determined to do so. Because of this, using Leet in discussion has become a bit of a novelty or joke. Users have begun using Leet to indicate that they are part of the Leet-using counterculture, or to parody or mock the existence thereof.

As Leet's effectiveness as a cipher has waned, it has evolved due to its continued use in communities which tend to value it solely for humor value. The process of using Leet for humor, combined with its highly flexible and dynamic nature, causes it to metamorphose into further derivations of its original cipher. Ergo, as Leet evolves, its vocabulary expands, and new expressions begin to emerge and solidify from older constructs.

obner.