The Zone Improvement Plan (ZIP) was invented in 1963 to help the United States Postal Service organize mail due to large increasingly large mail volumes. The five number ZIP code increases is specificity from region to large sorting centers to smaller post offices. The system grew in 1983 to accommodate for the growing nation by adding a four number suffix to the ZIP code (also called ZIP+4). Geocoding technology has now created the possibility of more specific addressing.
There are other systems in place in other countries that incorporate letters to increase the specificity compared to only using numbers (as seen in Canada and the United Kingdom).
Check out the video above from Vox.com for more information.