The minor league system as it exists today is an abomination in the sight of the Lord. Players are assigned to the minor league team at the last minute without the team having any say in who wears their uniform, players spend two weeks at a city and them are moved around like checkers, anonymous young men playing to develop skills rather than playing to win...pennant races with no meaning, no connection between city and player, player and fan, fan and city. They have really, truly reached the point at which they don't care about winning.
Bill James overstates things a bit here in his essay "Revolution", which is an excellent primer on the relationship between the minor league teams and their major league patrons and how it got that way, but not by much. Since that essay is a bit hard to come by, appearing as it does only in the 1988 Baseball Abstract and his (mostly) prose collection This Time Let's Not Eat The Bones, I'll summarize it for your benefit and add a few of my own observations. Those mostly come from my experience with the independent minor league teams as a stringer for USA Today's Baseball Weekly, which like its predecessor The Sporting News has known sin and now covers other, lesser sports.
In the original primordial soup of baseball, the very idea of organized leagues providing a pipeline of talent to the top teams would have seemed hopelessly optimistic and possibly utopian; there were times during the 19th century when it wasn't even certain that baseball would survive as a professional sport, with National League teams in places like Troy, New York and Fort Wayne, Indiana while major cities like Detroit and New York City had none. Eventually, of course, the National League got its act together and started buying talent from other teams, and by the beginning of the 20th century, the American and National Leagues were clearly at the top of the heap.
All the other teams in the International League, Three-I League, Canadian-American League were independent. They had no responsibility to the major league teams, no subsidies from them, and didn't have to sell their players to other teams if they didn't want to. This changed gradually when Branch Rickey began to invest in minor league teams during his tenure as business manager of the St. Louis Cardinals. This provided the Cardinals with a steady supply of quality players, which made the the team one of the powerhouses of the National League. Other teams followed suit to remain competitive; those that did not, such as the Boston Braves, St. Louis Browns, and both Philadelphia teams, had to subsist on whatever was left over or cast off, and as a result languished in the second division for almost three decades before being bought by owners who could afford to invest in farm systems.
The advent of television in the 1950s killed off many of the smaller farm teams as well as the Negro Leagues*, and the exodus of the Dodgers and Giants to California doomed any chance the Pacific Coast League might have had of forming a third major league. By the end of that decade, just about every minor league team in America was owned by one major league team or another, and over the next forty years, only teams owned directly by the major league teams (mostly in the Gulf Coast and Arizona leagues) and occasional wildcat teams such as the Portland Mavericks and the Utica Blue Sox** would not be bound by affiliation contracts. This gave rise to the situation James' jeremiad addresses.
Originally the farm teams formed a pyramid, with major league teams owning dozens of minor league clubs, but over time the pyramids shrank into a pipeline, partially because college baseball programs began to do for free what Class D and C minor league teams had done, and partially because providing players, coaches, managers and equipment to the minor league clubs became a significant cost to the parent clubs, especially when signing bonuses began to increase. Paradoxically, this narrowing of the player development pyramid into a pipeline has given the minor leagues some bargaining leverage against their major league patrons, and at the same time, the high cost of attending a major league baseball game has drawn attention to the less expensive option of minor league baseball. New owners have worked to get better parks, provide more entertainment for fans, and in general improve the minor league baseball experience for the fans, an example that the major leagues are belatedly following.
So almost fifteen years after James' essay, things have improved somewhat in minor league baseball for the operators and the players, and there is even some competition in the form of the independent minor leagues. Still, as far as the kind of baseball being played and its connection to the fans in places like Hagerstown, Indianapolis and Baton Rouge, it might as well be professional wrestling.
*These had dwindled to virtual farm teams themselves, although no formal ties existed and players were often signed by the major league teams without regard to whether they were already under contract to a Negro League team or not.
**The season spent by the Blue Sox as an independent team is chronicled in Roger Kahn's Good Enough To Dream.