Before there were all kinds of GIFs, but mainly unedited direct frame sequences out of movie files, yet there was no need to keep the files small. Yet if you wanted to see them in your dashboard stream in their full animated glory, the GIFs had to be kept under that limit at all costs.
Creative workarounds were found (minimizing frames/short loops/masking out static parts of the image) to create outstanding rebloggable content worth sharing.
If tumblr didn't have that limit, I'm pretty sure we wouldn't be seeing the current GIF-renaissance, maybe reaction-GIFs, but for sure not stuff like:
iwdrm, mr. div, head like an orange
file under: http://en.wikipedia.org/wiki/Creative_limitation