Whether it was a popular folk story or genuine history I know not (a bit like King Alfred burning the cakes) I was always taught that it goes back to "Bluff King Hal" or King Henry VIII!
In order to standardise sales of a "yard of cloth" when King Henry became furious at being told that a draper had sold insufficient cloth for his tunic, when the same shop had previously sold the same quantity and his tailor had enough cloth! (and King Henry's clothes needed a lot of yardage, owing to his massive appetite and consequent bouts of gout and obesity!) Up until that point, the yard had been taken as the length from the shopkeeper's nose tip to the tip of his index finger - and of course that varied according to the shopkeeper's physical size. A carpenter was called to make an official yardstick, by which the entire nation's measures would be standardised and this yardstick was notched in three equal places. The distance, allegedly, of each piece equated to the size of King Henry's foot.
Because a shilling comprised twelve pennies, and people were used to items being sold by the "dozen", it was decided to divide the "foot" into twelve equal portions for smaller measurements - quite where the name "inch" came from, I can't recall.
Metric is easier, except when I do carpentry because I learnt imperial! If you tell me something's two feet long, or to go and get a length of four by two, I can visualise it.
It may be easier, but metric's not half as much fun -there aren't any stories attached to it (unless someone knows different!)
Maybe it came about because of the Wee Kircudbright Centipede!
http://www.youtube.com/watch?v=-nd0pM1CbA8
I do order 4x2 by the metre plus there is no substitute for a pint of beer!