What is the rationale for fread/fwrite taking size and count as arguments?

The difference in fread(buf, 1000, 1, stream) and fread(buf, 1, 1000, stream) is, that in the first case you get only one chunk of 1000 bytes or nothing, if the file is smaller and in the second case you get everything in the file less than and up to 1000 bytes.

It's based on how fread is implemented.

The Single UNIX Specification says

For each object, size calls shall be made to the fgetc() function and the results stored, in the order read, in an array of unsigned char exactly overlaying the object.

fgetc also has this note:

Since fgetc() operates on bytes, reading a character consisting of multiple bytes (or "a multi-byte character") may require multiple calls to fgetc().

Of course, this predates fancy variable-byte character encodings like UTF-8.

The SUS notes that this is actually taken from the ISO C documents.