Olympics were a defining moment in Korean history
: many would argue that they were the pivotal point when South Korea
finally emerged victorious over North Korea
in the international arena
Seoul's bid was expected to win from the get-go. Asia had not hosted an Olympic Games since the 1964 Tokyo Olympics, and the only other bid from Asia was that of Nagoya. South Korea beat the living hell out of its Japanese competition, buttering up International Olympic Committee officials with ambitious stadium designs and gorgeous Korean women. They couldn't lose, and indeed, they didn't lose.
The first real stumbling block was North Korea itself. At first, the North Korean government wanted to co-host the Games, with half of the competitions in Pyongyang and half in Seoul. After extensive negotiations, they were offered the cycling and gymnastics events, which they turned down. Kim Il Sung responded to the move by building a gigantic 200,000-seat May Day Stadium in Pyongyang, which opened by hosting a seven-nation marathon run.
Next, the North tried to put pressure on the USSR, China, and other Communist Bloc countries to boycott the games, as the Soviet bloc had boycotted the previous L.A. Olympics. Mikhail Gorbachev, however, was wary of such a move, and the Russian Olympic authorities were determined not to sit out two successive Olympic Games. So the Russians ended up going to Seoul, and the Chinese followed them.
The Games marked the beginning of relations between South Korea and the Soviet Union, and also marked the beginning of the end of North Korea's beneficial relationship with Moscow. Soviet journalists went to Seoul for the first time, and gave people throughout the Eastern bloc an unprecedented glimpse at the success of capitalism in the South. Indeed, after the Games were over, the Soviet officials were allowed to take their Western computers, electronics, and other goodies home with them: two years later, Gorbachev and Roh Tae Woo met in the first state-level conference between the two countries.
North Korea didn't let this loss go by without a fight. Two secret agents, reportedly dispatched by the young Kim Jong Il, posed as Japanese tourists and planted a bomb on a Korean Air jetliner departing from Abu Dhabi. Apparently, their intent was to scare people planning on visiting South Korea during the Olympics. Unfortunately for Kim Jong Il, his terrorists were caught in Bahrain shortly afterwards: one managed to bite his cyanide in time, but the other was caught, sent to the National Intelligence Service for questioning, and emerged as a born-again Christian.
Anyway, North Korea's boycott was rather inconsequential, and mostly consisted of Communist countries from outside the Soviet bloc. Nobody north of the DMZ got to hear about the Olympics, but everybody else got to see a "new" Korea on television, and read about it in newspapers and magazines. It was a public relations coup of epic proportions. South Korea would never be the same again.