Slight disclaimer to start off with, I'm an indie game developer who mostly does freelance programming work. I would not be able to do what I do for a living had it not been for the rise of digital distribution in it's various incarnations. Anyway lets get to it.
Not all that long ago there were a lot less on the indie games scene, while not being entirely true, they were a lot less prominent the way they are now. The proliferation of the internet did a huge thing for small independent developers and that was giving them a way to sell their game that didn't involve boxed retail. Back then if you were an indie trying to get your game to be even taken and put on a store shelf was an enormous undertaking and that wasn't even considering the supply chain things of actually making disks. That's not to say that you couldn't do it, but it was a barrier that for a one or two person team just wasn't really practical so it was pretty limiting in the kinds of games you made.
You could setup your own site and sell digitally from there or burn your own CDs and then mail them individually out to each customer you had. But in many places it was still the transition period between widely available broadband and modems so a lot of people couldn't download games easily and the latter option well that sounds about as much of a nightmare as it actually is.
Fast forward a little bit to the beginning of Steam the store front not the awful patcher/DRM for Half Life 2 and XBLA you pretty quickly began to see more and more smaller games popup. It very rapidly became possible for a small team of people to make a game and sell it and get in front of a large enough audience for that to actually be a profitable idea. That's spiralled a bit out of control on the Microsoft side with their own restrictions, policies and redesigns but Steam became the haven for a lot of developers. Suddenly everyone who had an internet connected 360 or bought Half Life 2 could see your game.
This visibility was an incredible change. There have always been people that just make games, for flash portals, hobbyists and similar. And these new services offered that shift where you could work on making weird small games and get it in front of that critical mass where making them as your full time job was actually viable. On the 360 side there was always some weirdness putting your games next to the 360 lineup and with what games got chosen by Microsoft to even be on the service. This led to, in many ways, unrealistic expectations for what an indie game should be, not in terms of quality but in terms of scope. And early on a lot of deals that were being signed required developers to put in a multiplayer component into all XBLA titles. For a lot of games that just meant leaderboards, but many games were required to put in full on multiplayer modes which was disastrous for some developers and in hindsight an utterly ridiculous requirement.
The next big thing to happen in the industry would be Apple getting into the smart phone business and after they realised that only having web applications was really dumb, they opened the App Store to developers. Now beyond the iPhone selling massive quantities it did a couple of things that were somewhat new. One was the flat 70/30 split that was totally transparent to everyone and the other was that your dev kit was your phone. (Note: Microsoft has something similar with the 360 and XNA but that didn't exactly take off in the same way). And this has led to more and more smaller games because the expectation you have of a phone game wasn't exactly very high before. Compare what you get now on iOS and Android to what came before. Pretty massive gap and because of the App Store and the now called Google Play all of that stuff is possible.
It's not all rosy of course because the simplicity of make a game put it out on a store and sell it to people, going from finished game to on limitless selling on a store taking all of about 7 days. It has led to a whole lot of terrible games, the massive price reduction where now somehow $2 is expensive for a game that took a team months to make. However it was the thing that helped bring back the rise of the tiny team. You could make a small game idea, put it out there and people didn't care that much how good or bad it was because they only spent like a Dollar on it, unless it was completely awful.
It's progressed a whole lot in a really short space of time, you have dozens of services to choose from Humble Bundle and Indie Royale, to Steam, GoG, Desura, XBLA and PSN. Each one of these just by their existence and how they work now have made being a game developer for many possible. Digital distribution right now has a whole host of problems, from DRM that's really intrusive and stops you from playing a game you bought, licensing agreements that say you might not own your game even though that concept is kind of insane, how DLC has changed how we think of what happens to our games after they've been made, free to play games that are designed to be awful games purely to get money out of people, so so many patches for everything. But this stuff will get sorted out one way or another. There will always be people that take the high road and say the people that buy our games are great. And on the flip side there will always be people that think of consumers as walking wallets that should give us their money. But all of it stems off of the internet, the idea of digital distribution and that has led to games, that wouldn't otherwise have existed, actually getting made and the people that made them are able to continue making awesome things.