The Exchange server and the client (that evolved into Outlook) were originally (circa 1992) based on the MAPI standard (stands for Messaging Application Programming Interface). Broadly this can be divided into the MAPI data model, and the MAPI object schema. Very simplistically, the MAPI data model can be summed as: message stores (think mailboxes) that contain folders that contain items that contain attachments. And all of the above entities are simply a collection of scalar properties (name, value pairs). The original MAPI schema laid out the common list of attributes applicable to email messages, for eg: Subject, Received Time etc. This has since been extensively extended by Outlook and Exchange for various advanced functionality.
The Exchange server store was implemented to store the above data model in a very efficient manner, using a database technology called internally as Jet Blue. This data model, although simplistic in this day and age, has proved extremely flexible and surprisingly powerful to model many things that the original inventors could never have even imagined. And the Exchange server, due to its excellent implementation of this data model, has reaped great rewards.
The primary mail transport protocol used for business e-mail back then was X.400. At about 1995 or so, the internet wave came along. The Web, the Browser, and HTML changed the world. Along with them the popularity of other standards based protocols for email increased, such as SMTP for mail exchange and MIME as the serialization format for email messages. Both of these rocked the ship of Exchange back then.
The Exchange product had already been in development since '92 and more delays to complete it and ship it would have pretty much meant disbanding it altogether. The pressure from the executive level to ship it was intense. But folks in Exchange back then were wise enough to see that this internet wave was too big to just be a passing fancy and that these new standards must be embraced. As a compromise, support for SMTP as a mail exchange protocol (instead of just X.400) and MIME as a data interchange format (instead of just MAPI) were added to the product, but on the periphery so that the core product won't be affected much.
Fortunately, the existing transport architecture had supported the notion of Gateways to connect to disparate other mail systems that existed then (again circa '92) who were foolish enough to not support X.400 natively! For example to connect with ccMail, GroupWise and the likes. We decided to lump this new kid on the block (SMTP) in the same category and modelled it simply as a gateway add-on to connect to this thing called the "internet"! This was called the Internet Mail Connector or simply the IMC.
This IMC also then got the fun task of back and forth conversion between the data format stored native in the Exchange store (MAPI) and the data format that was the new internet standard (MIME). A conversion library was created for this purpose and was named, somewhat oddly now, as IMAIL (Internet Mail). This was the how we shipped Exchange 4.0 (March 13 1996). The next release, 5.0, was a very focused one in which we made very minor changes, although we did also add POP support. Both the IMC and IMAIL stayed pretty much the same as they were in 4.0.
In the next release, 5.5, we decided to add support for IMAP4 as well. Now, POP and IMAP were similar to SMTP in insisting on MIME as the data interchange format. So it was decided to move this IMAIL conversion library closer to the actual data store (that was still a MAPI store of course) to improve performance. In addition, we invested significantly in this library to do a top notch job of translating to and from these 2 formats, and this has been quite a success overall. Exchange 5.5 was a very successful release thanks to the right balance of functionality and simplicity.
The next release was Exchange 2000. By this time the domination of the internet protocols was so complete that we was decided to swap the roles of SMTP and X.400. That is, to make SMTP our primary mail exchange protocol even between Exchange servers, and treat X.400 as a one-off Gateway to reach pockets of the world that were still using it (mostly Europe). Also, we decided to go even further along the road of embracing MIME as the data format. We decided to actually enhance the core Exchange store to make it natively store and "understand" MIME. In this release we also invested in a new file system technology that would let us store these large "streams" of MIME content more efficiently. See Jon Avner's blog on the M: drive for more details on this one. In order to satisfy our richest client (Outlook) that continued to demand a MAPI data model, we had to engineer the Exchange store to do on-demand or deferred conversions back and forth between the 2 formats. As one can imagine, this was a very challenging piece of engineering, fraught with subtle traps. In the Exchange 2003 release we did not make any significant changes in this area, and status quo from the 2000 release remains.