The first known phonographic recording device was called a phonautograph. It was invented by a Frenchman named Édouard-Léon Scott de Martinville and patented on March 25, 1857. The device could transfer sound to a visual medium but did not have the ability to play the sound back.
Fast forward twenty years to 1877 and along comes Thomas Edison, who not only figures out how to record sound but also how to reproduce it through playback. Ironically, though the phonograph (“sound writer”) would literally change the course of music forever, it was not initially considered for musical applications at all. Edison intended his “talking machine” for dictation and in an 1878 essay proclaimed that his invention would “annihilate time and space, and bottle up for posterity the mere utterance of man.” The idea never really caught on though because oddly most men preferred dictating to attractive young women, not machines.

Nearly three decades would pass before refinements in the device would yield its first musical recordings but finally in the 1890s some clever businessmen had phonographs installed in penny arcades, charging customers a nickel to hear their favorite tunes. By the turn of the century the phonograph was being marketed as a “musical device”. It was a huge turning point in the history of music. Performances could suddenly be preserved for all time rather than fade into obscurity with the last note. But as much of a break through as the phonograph was, it did have its limitations.
All recording was done acoustically with a musician(s) having to sing/play into a metal recording horn rather than a microphone. There was an abundance of surface noise and the recordings did not capture the full range of some voices/instruments. Classical musicians were especially horrified by the thin, tinny sound of the “canned music” and many refused to set foot in the studio. However, jazz enjoyed a surge of popularity since brass and the boisterous nature of the style cut through on recordings so much better than the subtler, complex symphonic sound could.

Some musicians also began to worry that phonograph recordings would eventually replace live music and in turn endanger the working musician’s livelihood. Others complained that the new fangled machine simply could not capture the true nuances and warmth of a live performance. Both of these were very valid concerns because the advent of the phonograph not only changed the way in which music was delivered but also the way people heard it; the recording being a never-changing facsimile of only one performance.
The very limited fidelity and space available on a record forced other changes in the way musicians wrote and performed their works. With these time and sound quality limitations in place musicians began composing around the new medium rather than enjoying the freedom they once had with live performances. The available 78s of the time would only hold 3-4 minutes of music and incredibly that is still the standard length of a single over a hundred years later.

But musicians weren’t the only ones greatly affected by this new technology; audiences had a difficult time adjusting too. Folks of the time were accustomed to not only hearing a performance but watching it as well. The idea of listening to a disembodied voice flow forth from a mechanized box was very disconcerting for some people. In response, inventors came out with phonograph attachments that would rotate images in time to the music.
Additionally concerts were very communal events where family and friends would gather to socialize as well as be entertained. People treated the phonograph in much the same way; listening in groups and applauding afterward just as if they were at a concert. One was considered a lunatic if he enjoyed the phonograph in private. At the time it was considered as taboo as drinking alone or talking to yourself.

Despite these “drawbacks” that most of us now consider just plain silly, the phonograph gave us the very important ability to document and record our rich music history. Its invention was to music what written word was to speech, and it forged an everlasting relationship with technology that has grown and morphed over the years.
References:
http://research.unc.edu/endeavors/win2007/phonograph_effects.php
http://www.recording-history.org/HTML/recordingmusic1.php
http://www.nytimes.com/1989/02/26/arts/sound-edison-s-impact-on-art-musicians-provide-answers.html
http://www.metoperafamily.org/operanews/_archive/1299/sight&sound.1299.html
http://www.newyorker.com/archive/2005/06/06/050606crat_atlarge?currentPage=all
http://www.washingtonpost.com/wp-dyn/content/discussion/2005/07/21/DI2005072101733.html
http://www.princeton.edu/pr/pwb/volume98/issue26/sound/