TheAnglican has pointed out lots of interesting history, although I'd like to contribute two more points.
- Catholics actually do believe that the bread and wine become the body and blood of Christ during the consecration. The official teaching by the Vatican is the essence of the bread and wine change while the physical appearance remain the same. However, there have been several occasions where the physical appearance change as well, the most famous of which is probably Lanciano.
- The Catholic teaching about eating of the flesh and blood is not to appeal to cannibalistic pagans in past times as serendipitous13 suggested, but it is actually because Catholics view Jesus' sacrifice as the new Covenant between God and Man. The Old Covenant, which can be found in the book of Exodus, was handed down during Jewish slavery in Egypt. The Jewish people were freed by the intervention of God through the slaying of every first born Egyptian child and animal. The night of the slaying, the Jews were instructed by God to take an unblemished male lamb and kill it. They were then to take the blood and put it on their door, and for every member of the household to eat the lamb. They were then to repeat this practice every year and it came to be known as the Passover. Those were the terms of the Covenant. Catholics view Jesus' sacrifice as the one that frees humanity not from the slavery of the Egyptians, but this time from the slavery of sin and death. Jesus takes the place of the lamb and that is the reason Catholics believe they are eating of his flesh and blood. It is for this reason Jesus is also frequently referred to as "the lamb that was slain".