The Vocaloid project was a international effort and is considered the brainchild of Kenmochi Hideki, also known as the "father" of Vocaloid. The first inital ideas came from him in Japan in 2000. Much of the research into the software came from the Pompeu Fabra University in Spain and Mr. Kenmochi led this project. It was pure collaborative research, and they didn't think about selling at that time. Vocaloid could say only vowels like "ai(love)". 4 months later, the Vocaloid's first real word was "asa(morning)". The orginal design of Vocaloid was to act as a replacement singer for a real singer and many reviewers at the time of Leon and Lola's release noted that "Vocaloid" was a bold effort as human speech was a complex thing to recreate. However Vocaloid was regarded as the first of its kind to tackle singing vocals.
The first studio brought on board was Crypton Future Media who were tasked with finding a English studio for an english version of the software. Out of all the studios they tried and tested, however, only Zero-G came on board.
After a application was put out for singers, each studio had their respective singers ready for production of each Vocaloid. In 2003, the first proto-types were heard.
Each of the 5 chosen singers had to be recorded while singing out a script of pronounications (later referred to as a "spell") that would give all the needed sounds for the engine to work with for their respective language (the script of which has been revised several times over the course of the engines life).
After much work, the samples were encoded and assembled into the vocaloid software. the first Vocaloids that were released from Zero-G were Leon, Lola and Miriam who sung in English, while Meiko and Kaito were released from crypton Future Media in Japanese. At the NAMM trade show, Power-FX hopped on board to be the second English producing Vocaloid studio. They produced the first Vocaloid 2 engine voice, Sweet Ann with lots of technical improvements compared to the first engine.
After a pre-order log of 3,000+ orders for Hatsune Miku, followed by lots of itnernet memes and the early easy attention gain on Nioc Nico Douga and Youtube, Vocaloid became what it is today.
And the rest is history....
Okay, I think I've answered the question of "how Vocaloids were created"?