I think Steam NextFests have been a big part of the prevalence of demos. Before we had those, sure, a few games would have demos, but they wouldn’t really gather much attention. NextFests are a good excuse for players to try a bunch of demos (think of the old demo discs that came with gaming magazines) and post about them on social media. This is a great way for smaller games to attract eyes, so now developers are more incentivized to actually produce demos, rather than just neat trailers and screenshots for marketing purposes.
I just don’t like that everyone also does time-limited demos. Like you’re only able to play the demo from this date to this date or something like that. Why not just keep the demo around for others who want a crack at it?
My guess is that the demos are released to find bugs, so if the demo stays up, they’ll get bug reports for bugs they have fixed (and I’m not a game dev but I’d imagine that constantly having to compile new builds that are specially made as a demo with the bugs patched out would be annoying)