This article is from the alt.usage.english FAQ, by Mark Israel firstname.lastname@example.org with numerous contributions by others.
For those who want to know where the apostrophe came from, here
is how it probably happened. Some of this is well documented, some
is guesswork on my part.
Back in the days when English had many more inflections than it
now has, the most common suffix for the genitive singular was -es.
(There were several noun declensions, so that not all nouns fitted
this pattern; but this could be considered to be the "most regular"
case.) For example: mann (=man), mannes (=of the man). Over time
there developed a tendency to stop pronouncing the unstressed "e",
so that "mannes" became "mann's". The apostrophe stands for the
(Modern German still has -es as the genitive suffix for many
nouns. The Germans did not stop pronouncing their unstressed "e"s,
so the case suffix is still written as -es.)
Pronouns were also inflected, but not in the same way. (They
were all fairly irregular, as they still are today.) The genitive
form of "hit" (=it) was "his" (=its). As "his" evolved into "its",
there was no "e" to drop, therefore no logical reason to insert an
The "its" and "it's" forms did coexist in the 17th and early 18th
century, but today the "its" form is considered to be the only
Plural nouns are harder to explain. The most common genitive
plural inflection was -a, which is quite unrelated to our modern
-s'. My best guess is that most of the old plural suffixes were
replaced by -s under the influence of French; and that subsequently
the rules for forming singular possessives were extended to the
plurals. If this is what happened, then a hypothetical -s's plural
possessive suffix would immediately collapse to -s', in the same way
as for many singular nouns ending in "s". There was in any case a
long period where spelling was a lot less standardized than it is
today, so one should not think in terms of any sort of "standard
rule" existing during the transitional period.