The ruff began as a small, ruffled collar as decoration, used during HenryVIII's reign. Over subsequent decades it began to expand. From what I can tell, since ruffs were mostly decorative, usually made of lace or fine fabrics, and often decorated with silk, gold/silver thread, and embroidery, ruffs were mainly a fashion statement that were also a status symbol. The finer the qualities used for the ruff, the more prestige it lent to you. It doesn't seem to have had a practical use.

There are much more details found on these websites, including a timeline.

http://www.worldofshakespeare.com/strictly-shakespeare/history-of-tudor-ruff/ http://www.elizabethancostume.net/ruffs/ http://www.elizabethan-era.org.uk/elizabethan-ruffs.htm