3M Corporation invented the use of micro-encapsulated fragrances for use with stickers in the late 1970's.
The micro-encapsulation technology can be thought of as trapping a fragrance (a chemical compound, either natural or synthetic) in a tiny tiny bubble. These bubbles are then sprayed onto a substance (like paper) and dry into the fibers of that substance. Scratching the substance breaks some of the bubbles, releasing the fragrance.
The more 'hiding places' the bubbles have, the more scent (bubbles) it can hold - again this is why the matte paper is so perfect for this technology. The smoother, glossy paper just does not have as many hiding places...

Scratch and sniff stickers became highly marketable in the early 1980's. Several companies led the sales including Creative Teaching Press (CTP), Trend Enterprises, and Mello Smello.
Initially, stickers were sold by educational supply companies through catalogs. Teachers bought the stickers to use as rewards for their students on homework and tests.
Students began collecting the stickers, and stickers were made available to the general public. 'Scratch and sniff' stickers became a household word, and anyone who grew up in the 1980's can recall their tremendous popularity.

Although sticker manufacturers continue to produce scratch and sniff stickers today, the companies have changed the way they manufacture the stickers.
In 1983, some companies decided to start producing the stickers on glossy paper, as opposed to the previously used matte paper. The glossy paper does not seem to allow the micro-encapsulated fragrance to adhere as well, nor does it have as many hiding places, as the matte paper did.
Now, decades later, the majority of the matte scratch and sniff stickers still retain their scents, many still trading hands from collector to collector, like old coins or cars...

Needless to say, the popularity of scratch and sniff waned in the mid 1980's -- until now, with Smell Stickers bringing back the 'real' thing that started it all!!