The good old days
Those of us who are old enough to have used typewriters will remember how SHIFT actually physically shifted the carriage, while the SHIFT LOCK key locked it into a different position. Shifting letters was a lot more work back in those days; your pinky finger needed to move a couple pounds of metal (or at least it felt like a couple pounds after getting through a few pages of your correspondence) every single time you typed a proper name or began a new sentence.
On most manual typewriters and some electric ones, the letters of the alphabet were affixed to typebars. Two letters (or numbers, or symbols) would be placed vertically on each bar, and the shift key lifted the whole system up so that the uppercase letters would be accessible. On later electric typewriters, the letters would be on a typeball or a daisy wheel rather than individual metal bars. These would be "shifted" electrically rather than with the force of the typist's pinky.
In either case, the letters would strike an inked ribbon, which would transfer the letter to the paper. Ah, paper.
From SHIFT to CAPS: the computer age
Many terms from old-fashioned typesetting slang have carried over into computer lingo, even though many of them don't make much sense any more. Even the word carriage can be found in some computer contexts: our old VAX machine had a button called CR/LF, though there is no lever, no ding! followed by a satisfying zzzzip, no actual carriage, on any computer anywhere.
The word shift is perhaps a little less odd in a computer context, since "shift" is quite often used metaphorically and does not always refer to moving physical things around. Still, I wonder what that key might have been called if we had invented computer keyboards without going through the typewriter phase first. "Shift" doesn't seem like an obvious choice.
That key by your left pinky is no longer called SHIFT LOCK; it's called CAPS LOCK. The change is not just cosmetic; the keys actually behave differently. On a typewriter, SHIFT LOCK moves the carriage to uppercase, and SHIFT unlocks it. Computer users like toggles, so this logic probably doesn't make sense to many of them -- nowadays, we are used to pressing CAPS LOCK once to move to caps, then pressing it again to turn caps off. Furthermore, since there is no physical movement of a carriage, numbers and symbols can stay unlocked even when the capslock light is on. Thus, computer users don't encounter a common problem that plagued typewriter users back in the day, typing sentences like
I JUST WANTED YOU TO KNOW THAT I WILL BE COMING HOME AT &:))
Apparently there are little doodads you can download which will transform your CAPS LOCK key into a SHIFT LOCK key, if you prefer the asymmetricality of typewriter-era shifting.
Capslock and popular culture
Nowadays, capslock is not just a key: it's an attitude. More and more often I see the word "capslock" typed (ironically) in lowercase, without a space. It can be used as an adjective -- "When I sent Margaret that e-mail cancelling our date tonight, she got all capslock on me" -- or even a verb -- "Oh, man, I'm so excited about the next season of The Venture Bros. that I MUST CAPSLOCK ABOUT IT."
On bulletin boards and public blogs, people who type all in caps are characterized as trolls or clueless newbs; on the screen, allcaps feels simultaneously shouty and strangely uninflected, making its users sound like little kids bellowing in a library. Since CAPS LOCK is right next to the A key, it's easy to nick it with your pinky by mistake, turning the second half of an innocent sentence into yelling. We've all made that mistake, but newbs don't notice they do it, displaying their eye-burning loudness to the ethersphere.
Of course, as with so much else on the Internets, the hectoring tone of capslock can be used ironically. Like lolcat or l33t, capslock can be humorous, even witty, in the right hands. My favourite trick is to write a sentence in capslock and end it with a period; it gives the impression (at least to me) that the sentence is somehow both shouted and modulated, sounding less like a driver with road rage and more like a demagogue bellowing platitudes from his balcony.
The cult of capslock
Believe it or not, there are entire fan communities on Livejournal with names like capslock_lost, capslock_btvs, and capslock_lotr, where people are invited to talk about their favourite movies and TV shows all in caps. The effect is dizzying, and sometimes weirdly funny: the most ordinary observations about characters and plots are transformed into childish yelling matches:
SAYID IS TOTALLY THE CHUCK NORRIS OF THE ISLAND
I AM ENJOYING THE FLOWERS ON HOUSE'S CANE
I MEAN FRODO KINDA LOOKS LIKE A WOMAN
... and so on.*
Just another thing to blame computers for, I guess.