This video explains and shows the stages of the birth of Minecraft. If the video is unavailable, here's the text version.

Notch was inspired by Dwarf Fortress, a game where you have a build a fortress and it was really a mess. So he created a more 3D game called RubyDung, which he ditched the project. RubyDung really looked like an isometric view of Minecraft. Notch wanted to implement first person view, but when you zoomed up it was all blurry. Around the same time Notch found a game called Infiniminer, a mining game that looks very similar to Minecraft. He combined the two and created a test for an Infiniminer clone called "The Cave Game". It was later renamed to "Minecraft: Order of the Stone" and then just Minecraft. He then implemented more blocks, building and a better world generation. This version was labelled Classic. Then Notch implemented Survival, when you could break and place blocks. It also included mobs and arrows. It was called Survival Test. Then Notch included inventory, crafting and other game mechanics we see in today's version This was labelled indev. Last but not least, the last stage before Minecraft got available to the public was called infdev, where the terrain generation looked a lot like today's.

Thank you! Don't forget to drop a diamond!