The change is generally known as the Options Symbology Initiative (or "OSI") and there is a highly comprehensive guide to what occurred here.
The basic gist of what occurred was a shift FROM:
A coded system in which a shorter (3
to 5 letter symbol) could be used, but
the symbols required a data source to
determine what they meant. MSQ AD
used to be a MSFT Jan 20 option, but
you had to look up MSQ in a table to
know that.
TO:
A system in which much longer symbols
are needed, but they contain all the
information required to identify a
unique option: DELL 4.000 C 5/16/2010
isn't easy to type, but once you know
how to read it, it's easy to see that
it's an option on DELL, expiring on May 16th 2010, is a call (rather
than a put,) and has a strike price
of 4.
As to why they did it, there are a number of benefits, but most important reason is this one: they were running out of symbols. The number of permutations of 3-5 letter symbols had been exceeded by the number of options that had been listed, resulting in the need to "recycle" symbols. This meant that a current option symbol would be the same as an old one, in some cases on a different stock, which was wreaking havoc on historical data.