In 1968, the MPAA chairman Jack Valenti instituted a voluntary rating system with 4 levels. G for General Audiences, M for Mature Audiences, R for Restricted - no one under 16 (this was later changed to 17) without an accompanying adult and X for adults only.
Confusion over M changed that rating to GP - for general audiences with parental guidance - then to our familiar PG. PG-13 was added in the mid 80s as a mid point between PG and R after some outcry over Steven Spielberg films like Indiana Jones and Temple of Doom, Poltergeist and Gremlins all receiving PG ratings despite the amount of gore and unsettling images. Red Dawn would hold the honor as the first PG-13 film ever released.
The adult only rating of X was never trademarked by the MPAA - filmmakers could self classify their films under the X rating. This became a problem as the video tape pornography market exploded in the 1980s exploiting the X rating with the logic that if one X is hot, then XXX must be really steamy. In September of 1990, the MPAA replaced X with NC-17.
The movie ratings system today is not without controversy. There is much secrecy and arbitrariness surrounding what separates a film from one rating to another. And there exists a silent economic censorship in place as many outlets and retailers refuse to carry NC-17 titles.
But the internet, the brightest or filthiest bastion of free speech is very much changing how films can be distributed and what kind of content is available to people. The goal of the rating system is to inform parents of the content of a film - now more than ever that information is readily available and even more specific than the Ratings system could ever accomplish.
Some may say that films were sexier and scarier under the censorship of the production code - for there’s nothing that can be seen that is as tantalizing and horrifying as what the imagination and anticipation can conjur. There may be some truth in that. But given the choice between freedom and censorship, Freedom is the only sustainable option.