People like Afrika Bambaataa, producers John Robie and Arthur Baker started to mix rap with funky yet electronical sounds. Before that, hip hop was basically rather traditional musically, based on funk and disco tracks like "Good Times" by Chic. It was only the power of the rapping, like all African American music of West African descent, that made most rap tracks different from their disco forebears. The music of early rap records was performed live in the studio and then mixed with the rapping, whereas live hip hop was two turntables and a microphone with DJs such as Kool DJ Herc, Afrika Bambaataa and Grandmaster Flash. Herc was a Jamaican, and in the beginning he brought the Jamaican tradition of dee jaying (toasting) and mixing to the Bronx, NY. In the end, Jamaican and African American traditions merged into the new music called hip hop.
Herc first tried to make people listen to the reggae tracks from Jamaica but it didn't work. Then he started using funk and soul records, focussing on the instrumental breaks. The "Ultimate breaks and Beats" series includes tracks from "Mary Mary" to "Apache" which have been sampled many times and are still used today by hip hop DJs. Of course, this music was organic rather than electronic. But hip hop DJs discovered weird sounds from Europe such as Kraftwerk's "Numbers" and "Trans Europa Express". Back then, this music was called techno....
With Baker and Robie, Afrika Bambaataa mixed Kraftwerk with funkier sounds inspired by Captain Sky's Super Sperm and taking melodic elements from a rock version of Ennio Morricone's "The Mexican". The result: "Planet Rock" (1982) by Afrika Bambaataa and the Soul Sonic Force, a track that changed hip hop music.
This new style of hip hop came to be called "Electro Funk". A group of young singers named Planet Patrol recorded a sung version of Planet Rock, "Play at your own risk", also produced by Baker and Robie. Electro Funk ruled hip hop for the next few years, both in NY and LA (Egyptian Lover, Wreckin Cru), and in Miami, a new kind of hip hop called "Miami Bass" emerged. Also House music was heavily influenced by Electro Funk. John Robie and Baker realized what new potentials were inherent to the new genre and went on mixing the sound wth R&B Vocals: "I.O.U." by Freeze was an instant underground club hit.
Latin Hip Hop
Many people list "Let the music play" (1983) by Shannon as the first freestyle track. The song was produced by Chris Barbosa, a Latino from NY. Barbosa changed and refined the electro funk sound, adding Latin American rhythms and a totally syncopated drum sound. That was definitely a reason why the style came to be very popular among Latin@s as well as Italian Americans. Hence, the names "Latin Hip Hop" or "Latin Freestyle". Now, the more neutral term "Freestyle" is generally preferred.
Freestyle the name
Why freestyle is actually called freestyle is subject to speculation. It is a genre with rather clear features: Dance tempo with stress on beats 2 & 4; syncopation on a bassline, lead synth, or percussion, with optional orchestra hits; 16th beat high hat; chord progression which last 8, 16, or 32 beats and are usually in a minor key; complex melodies with singing, verses, and a chorus, with themes about love or dancing. Maybe the term freestyle is due to the DJs spinning the wheels of steel, mixing. Others claim the singers were "freestyling" to the music. That would then be the same motivation as with "freestyle rap".
Not only electro was very popular in Miami, also freestyle was embraced with the southern Latin capital of the US. Pretty Tony aka Tony Butler actually first made electro, then bass and finally freestyle. He had a one man group called Freestyle and was the producer of freestyle singer Trinere.
Freestyle crossovers into mainstream
Although the producers were often Latinos, most singers were African American. Lisa Lisa was the first Latina singer, her band, Lisa Lisa and Cult Jam, was produced by Full Force who also made UTFO's music and even once worked together with James Brown. The music of Lisa Lisa and Cult Jam was less electro, more pop, and that was also probably the reason why groups such as Lisa Lisa and Cult Jam, TKA, Sweet Sensation and especially the Cover Girls were able to crossover into the pop market at the end of the 1980s. But soon thereafter, freestyle was no longer pop music: MC Hammer, New Kids on the Block and Milli Vanilli also had catchy tunes, certainly much more cheaper (and obvious) than the (also) often kitschy, but never tasteless sound of freestyle.
Back to the underground
At the end of the 90s, freestyle was underground again. Aficionad@s still bought freestyle records, and people like Lil Suzy, George Lamond, Johnny O and Angelique came to be stars--even if only recognized by the fans of this music. But who knows, after the electro revival with Westbam and Music Instructor, the future may bring a commercial freestyle revival.
As in other types of dance music, freestyle artists are often women who are singing tunes written by and produced by men. Of course there are exceptions: Stevie B produces his own records, George Lamond and Johnny O are also male singers. Of course, this kind of division of labour can also be found in other genres. And its roots are much older in Shakespeare's days, women had no voice, and in a way, this is still the case today. Of course, it would be necessary to investigate whether women actually have no part in the writing and production of for example freestyle, but it often looks like that.