The original intent of license plates was to demonstrate that someone had purchased a state (or county or city) license for their vehicle. Eventually, they became a handy law enforcement tool to identify vehicles, at which time, they became larger and significantly more legible — clean, raised letters and numbers on a contrasting background.
Of late, however, states have realized that license plates can be politicaly popular and profitable. The result? Legibility is way down (as is, frankly, the aesthetic quality).
(via kottke)