They hit a combination that people wanted. Most people didn't need a full featured PC, and they wanted something more portable than netbooks/laptops. It also has a better display than most computers close to its price (netbook displays are crap). Netbooks were just too cramped and too compromised for most people.
Plus, it had the wave of iPhone success, which established iOS as usable for many people. And yes, there's the Apple factor as well.
PC makers just didn't seem to understand. They practically lucked into netbooks and then didn't evolve them much, definitely not enough to actually make that market sustainable. The cheap laptops are pretty much crap (bad battery life, poor displays, too big and heavy, etc). Their tablets were just converted laptops and so had not very good displays, ergonomic issues, most needed stylus, not great battery life, and also were often quite expensive. Then there was the UMPC fiasco, where it was like they tried stuffing PCs into Game Gears.