Theatre takes its start in
ancient Greece where people would perform works by such
playwrights as
Sophocles -- who wrote
Oedipus Rex -- as part of their
Dionysian rituals.
Throughout human history, this art form has dazzled and inspired people often drawing criticism from traditionally conservative groups such as the medeival church.
While today theatre has been largely displaced in western culture by its decendants (motion picture, television, video game), its flexibility and the immediacy of live actors allow it to retain a certain power lacking in other medium.
Also, there's not very much money in theatre, so there are fewer money-hungry exibitionists trying to appeal to our baser instincts. This leaves room for the more talented playwrights, directors, and actors to put on artistic productions. This is why you never see Baywatch: The Musical or Phantom of the Opera VII.