What's the origin and story of steel string guitars

First, a bunch of German guitar-making technologies were imported into the USA in the mid-19th century, most notably by Christian Frederick Martin, German-born, Vienna-apprenticed. Martin moved to the USA to escape guild restrictions, having been involved in legal disputes between the Violin Makers Guild and the Cabinet Makers Guild over who was allowed to make guitars (the Cabinet Makers Guild, of which Martin was a member, won the legal struggle, but it was not fun). Martin's US company, established in 1833, is still in operation, and is still family-owned by his descendants. Some of Martin's construction methods (such as all tuning keys on one side of the head-stock) were ephemeral, but one key one, the use of X-bracing (vs the fan bracing usual for the classical guitar), stayed, and would be important for steel stringed guitars:

https://commons.wikimedia.org/wiki/File:Earliest_X-braced_Guitar_(July_1842),Martin%26_Schatz_Label,for_Delores_Nevares_de_Go%C3%B1i-_C.F.Martin_Guitar_Factory_2012-08-06-_013.jpg

There were definite class distinctions in American music of the time, and the humble end of guitar playing would spawn the steel string guitar. The guitar became popular in the US as a cheap portable instrument, and was a popular instrument to accompany the banjo and mandolin (providing the bass).

A problem: the guitar is quieter than the banjo and mandolin.

A solution: loudification of the guitar through steel strings, which was happening in the last two decades of the 19th century.

The high-class end of guitar music didn't approve of this, considering it as one of the many sins contributing to the degeneration of "true" guitar music, alongside things like tab notation, open tunings, and strumming with a pick:

toward elevating the instrument on the downward journey, especially among that class of plunkers whose ideal guitarist is a negro armed with a steel-strung jangle-trap, tuned more or less Spanish, and which he manipulates with the second finger of his left hand, and a mandolin pick.

Steel strings were cheap, and low-maintenance, as well as providing a louder sound. Perfect? Not quite, since they were also strung under high tension, putting a lot more stress on the guitar body. A guitar made for gut strings was typically not guaranteed to survive steel strings. The obvious solution was to make stronger-bodied guitars to cope with this stress, and Martin's company proceeded to do so. X-bracing was considered by some to be inferior (and cheaper), but could easily be made a little thicker and stronger, and Martin's design, basically the "flat top" steel string acoustic, dominated the market. Martin (and other makers) had already been producing stronger-bodied guitars, better built to survive travel.

Martin continued to be an innovative maker, introducing 14-fret guitars for more high-end notes (making the instrument more suited to banjo players, and also giving the guitar the potential to do the work of both guitar and banjo) and the "dreadnought" guitar body.

Given the popularity of the guitar and the introduction of steel strings in the late 19th century, it's very likely that, in the absence of Martin, some other manufacturer would have developed a popular designed-for-steel guitar, which would probably have differed from Martin's "flat top". The circumstances to push the development of the instrument were there; it wasn't a case of a manufacturer creating a demand. While Martin is usually credited with the design, most of the guitars came from other makers. Martin made instruments in the traditional way, employing skilled artisans (they only made their 500,000th guitar in 1990, and their millionth in 2004), and sales were dominated by mass-produced instruments, mostly from companies in Chicago. It was one of these Chicago companies, Maurer, who produced what appears to be the first guitar specifically made for steel strings and advertised as such, in 1904.