Origin of the dot and cross product?

A little bit more of the 'how and why': the dot product comes about as a natural answer to the question: 'what functions do we have that take two vectors and produce a number?' Keep in mind that we have a natural additive function (vector or componentwise addition) that takes two vectors and produces another vector, and another natural multiplicative function (scalar multiplication) that takes a vector and a number and produces a vector. (We might also want another function that takes two vectors and produces another vector, something more multiplicative than additive — but hold that thought!) For now we'll call this function $D$, and specifically use the notation $D({\bf v},{\bf w})$ for it as a function of the two vectors ${\bf v}$ and ${\bf w}$.

So what kind of properties would we want this hypothetical function to have? Well, it seems natural to start by not distinguishing the two things it's operating on; let's make $D$ symmetric, with $D({\bf v},{\bf w})=D({\bf w},{\bf v})$. Since we have convenient addition and multiplication functions it would be nice if it 'played nice' with them. Specifically, we'd love it to respect our addition for each variable, so that $D({\bf v}_1+{\bf v}_2,{\bf w}) = D({\bf v}_1,{\bf w})+D({\bf v}_2,{\bf w})$ and $D({\bf v},{\bf w}_1+{\bf w}_2) = D({\bf v},{\bf w}_1)+D({\bf v},{\bf w}_2)$; and we'd like it to commute with scalar multiplication similarly, so that $D(a{\bf v}, {\bf w}) = aD({\bf v}, {\bf w})$ and $D({\bf v}, a{\bf w}) = aD({\bf v}, {\bf w})$ — these two conditions together are called linearity (more accurately, 'bilinearity': it's linear in each of its arguments). What's more, we may have some 'natural' basis for our vectors (for instance, 'North/East/up', at least locally), but we'd rather it weren't tied to any particular basis; $D({\bf v},{\bf w})$ shouldn't depend on what basis ${\bf v}$ and ${\bf w}$ are expressed in (it should be rotationally invariant). Furthermore, since any multiple of our function $D$ will satisfy the same equations as $D$ itself, we may as well choose a normalization of $D$. Since $D(a{\bf v},a{\bf v}) = aD({\bf v},a{\bf v}) = a^2D({\bf v},{\bf v})$ it seems that $D$ should have dimensions of (length$^2$), so let's go ahead and set $D({\bf v},{\bf v})$ equal to the squared length of ${\bf v}$, $|{\bf v}|^2$ (or equivalently, set $D({\bf v},{\bf v})$ to $1$ for any unit vector ${\bf v}$; since we chose $D$ to be basis-invariant, any unit vector is as good as any other).

But these properties are enough to define the dot product! Since $$\begin{align} |{\bf v}+{\bf w}|^2 &= D({\bf v}+{\bf w},{\bf v}+{\bf w}) \\ &= D({\bf v}+{\bf w},{\bf v})+D({\bf v}+{\bf w},{\bf w}) \\ &= D({\bf v},{\bf v})+D({\bf w},{\bf v})+D({\bf v},{\bf w})+D({\bf w},{\bf w})\\ &= D({\bf v},{\bf v})+2D({\bf v},{\bf w})+D({\bf w},{\bf w}) \\ &= |{\bf v}|^2+|{\bf w}|^2+2D({\bf v},{\bf w}) \end{align}$$ then we can simply set $D({\bf v},{\bf w}) = {1\over2} \bigl(|{\bf v}+{\bf w}|^2-|{\bf v}|^2-|{\bf w}|^2\bigr)$. A little arithmetic should convince you that this gives the usual formula for the dot product.

While the specific properties for the cross product aren't precisely the same, the core concept is: it's the only function that satisfies a fairly natural set of conditions. But there's one broad catch with the cross-product — two, actually, though they're related. One is that the fact that the cross product takes two vectors and produces a third is an artifact of $3$-dimensional space; in general the operation that the cross-product represents (orthogonality) can be formalized in $n$ dimensions either as a function from $(n-1)$ vectors to a single result or as a function from $2$ vectors that produces a 2-form, essentially a $n(n-1)/2$-dimensional object; coincidentally when $n=3$ this means that the cross-product has the 'vector$\times$vector$\rightarrow$vector' nature that we were looking for. (Note that in $2$ dimensions the natural 'orthogonality' operation is essentially a function from one vector to one vector — it takes the vector $(x,y)$ to the vector $(y,-x)$!) The other catch is lurking in the description of the cross product as a 2-form; it turns out that this isn't quite the same thing as a vector! Instead it's essentially a covector - that is, a linear function from vectors to numbers (note that if you 'curry' the dot-product function $D$ above and consider the function $D_{\bf w}$ such that $D_{\bf w}({\bf v}) = D({\bf v},{\bf w})$, then the resulting object $D_{\bf w}$ is a covector). For most purposes we can treat covectors as just vectors, but not uniformly; the most important consequence of this is one that computer graphics developers have long been familiar with: normals don't transform the same way vectors do! In other words, if we have ${\bf u} = {\bf v}\times{\bf w}$, then for a transform $Q$ it's not (necessarily) the case that the cross product of transformed vectors $(Q{\bf v})\times(Q{\bf w})$ is the transformed result $Q{\bf u}$; instead it's the result ${\bf u}$ transformed by the so-called adjoint of $Q$ (roughly, the inverse of $Q$, with a few caveats). For more background on the details of this, I'd suggest looking into exterior algebra, geometric algebra, and in general the theory of linear forms.

ADDED: Having spent some more time thinking about this over lunch, I think the most natural approach to understanding where the cross product 'comes from' is through the so-called volume form: a function $V({\bf u}, {\bf v}, {\bf w})$ from three vectors to a number that returns the (signed) volume of the rhomboid spanned by ${\bf u}$, ${\bf v}$, and ${\bf w}$. (This is also the determinant of the matrix with ${\bf u}$, ${\bf v}$, and ${\bf w}$ as its columns, but that's a whole different story...) Specifically, there are two key facts:

1. Given a basis and given some linear function $f({\bf v})$ from vectors to numbers (remember that linear means that $f({\bf v}+{\bf w}) = f({\bf v})+f({\bf w})$ and $f(a{\bf v}) = af({\bf v})$, we can write down a vector ${\bf u}$ such that $f()$ is the same as the covector $D_{\bf u}$ (that is, we have $f({\bf v}) = D({\bf u}, {\bf v})$ for all ${\bf v}$). To see this, let the basis be $(\vec{e}_{\bf x}, \vec{e}_{\bf y}, \vec{e}_{\bf z})$; now let $u_{\bf x} = f(\vec{e}_{\bf x})$, and similarly for $u_{\bf y}$ and $u_{\bf z}$, and define ${\bf u} = (u_{\bf x},u_{\bf y},u_{\bf z})$ (in the basis we were provided). Obviously $f()$ and $D_{\bf u}$ agree on the three basis vectors, and so by linearity (remember, we explicitly said that $f$ was linear, and $D_{\bf u}$ is linear because the dot product is) they agree everywhere.
2. The volume form $V({\bf u}, {\bf v}, {\bf w})$ is linear in all its arguments - that is, $V({\bf s}+{\bf t}, {\bf v}, {\bf w}) = V({\bf s}, {\bf v}, {\bf w})+V({\bf t}, {\bf v}, {\bf w})$. It's obvious that the form is 'basis-invariant' — it exists regardless of what particular basis is used to write its vector arguments — and fairly obvious that it satisfies the scalar-multiplication property that $V(a{\bf u}, {\bf v}, {\bf w}) = aV({\bf u}, {\bf v}, {\bf w})$ (note that this is why we had to define it as a signed volume - $a$ could be negative!). The linearity under addition is a little bit trickier to see; it's probably easiest to think of the analogous area form $A({\bf v}, {\bf w})$ in two dimensions: imagine stacking the parallelograms spanned by $({\bf u}, {\bf w})$ and $({\bf v}, {\bf w})$ on top of each other to form a sort of chevron, and then moving the triangle formed by ${\bf u}$, ${\bf v}$ and ${\bf u}+{\bf v}$ from one side of the chevron to the other to get the parallelogram $({\bf u}+{\bf v}, {\bf w})$ with the same area. The same concept works in three dimensions by stacking rhomboids, but the fact that the two 'chunks' are the same shape is trickier to see. This linearity, incidentally, explains why the form changes signs when you swap arguments (that is, why $V({\bf u}, {\bf v}, {\bf w}) = -V({\bf v}, {\bf u}, {\bf w})$) : from the definition $V({\bf u}, {\bf u}, {\bf w}) = 0$ for any ${\bf u}$ (it represents the volume of a degenerate 2-dimensional rhomboid spanned by ${\bf u}$ and ${\bf w}$), and using linearity to break down $0 = V({\bf u}+{\bf v}, {\bf u}+{\bf v}, {\bf w})$ shows that $V({\bf u}, {\bf v}, {\bf w}) + V({\bf v}, {\bf u}, {\bf w}) = 0$.

Now, the fact that the volume form $V({\bf u}, {\bf v}, {\bf w})$ is linear means that we can do the same sort of 'currying' that we talked about above and, for any two vectors ${\bf v}$ and ${\bf w}$, consider the function $C_{\bf vw}$ from vectors ${\bf u}$ to numbers defined by $C_{\bf vw}({\bf u}) = V({\bf u}, {\bf v}, {\bf w})$. Since this is a linear function (because $V$ is linear, by point 2), we know that we have some vector ${\bf c}$ such that $C_{\bf vw} = D_{\bf c}$ (by point 1). And finally, we define the cross product of the two vectors ${\bf v}$ and ${\bf w}$ as this 'vector' ${\bf c}$. This explains why the cross product is linear in both of its arguments (because the volume form $V$ was linear in all three of its arguments) and it explains why ${\bf u}\times{\bf v} = -{\bf v}\times{\bf u}$ (because $V$ changes sign on swapping two parameters). It also explains why the cross product isn't exactly a vector: instead it's really the linear function $C_{\bf vw}$ disguising itself as a vector (by the one-to-one correspondence through $D_{\bf c}$). I hope this helps explain things better!

Seems remarkable that no one seems to remember the true origin of the vector and the dot products. The answer is actually hidden in i, j,k notations for the vector. This is the same notation used for quaternions. It happens that Josiah Willard Gibbs did not like the quaternions formalism, which was mostly used in physics at his time and as a result he came up with vector analysis. Recall that quaternions have these properties: $\mathbf i^2=\mathbf j^2=\mathbf k^2=\mathbf i \mathbf j \mathbf k=-1$ and what follows from these identities $\mathbf i \mathbf j =\mathbf k$ , $\mathbf j \mathbf k = \mathbf j$, $\mathbf k \mathbf i = \mathbf j$ (for example, to get $\mathbf i \mathbf j =\mathbf k$ use $\mathbf i \mathbf j \mathbf k=-1$ and multiply by $\mathbf k$ from the right. It is important to keep track from which side you multiply, because quaternion multiplication is not commutative (for example if you take $\mathbf i \mathbf j =\mathbf k$ and multiply both sides by $\mathbf j$ from the right you will get $\mathbf i \mathbf j^2 =- \mathbf i = \mathbf k \mathbf j= - \mathbf j \mathbf k$).

Now take two "vectors" $\mathbf u=u_1 \mathbf i + u_2 \mathbf j + u_3 \mathbf k$ and $\mathbf v=v_1 \mathbf i + v_2 \mathbf j + v_3 \mathbf k$ and multiply them as quaternions. What you will discover is that the answer will break in the real (scalar) part and the imaginary (vector) part. The real part (with the minus sign) will be the scalar (dot) product and the imaginary part will be the vector (cross) product.

Here are a few references about the history of linear algebra:

"A Brief History of Linear Algebra and Matrix Theory"

"History of Linear Algebra"

Cross Product - Wikipedia: History

The Wikipedia article seems to address your question most directly:

History

In $1773$, Joseph-Louis Lagrange introduced the component form of both the dot and cross products in order to study the tetrahedron in three dimensions.$^{[23]}$ In $1843$, William Rowan Hamilton introduced the quaternion product, and with it the terms "vector" and "scalar". Given two quaternions $[0,{\bf u}]$ and $[0,{\bf v}]$, where ${\bf u}$ and ${\bf v}$ are vectors in ${\bf R^3}$, their quaternion product can be summarized as $[−{\bf u}\cdot{\bf v},{\bf u}\times{\bf v}]$. James Clerk Maxwell used Hamilton's quaternion tools to develop his famous electromagnetism equations, and for this and other reasons quaternions for a time were an essential part of physics education.

In $1878$ William Kingdon Clifford published his Elements of Dynamic which was an advanced text for its time. He defined the product of two vectors$^{[24]}$ to have magnitude equal to the area of the parallelogram of which they are two sides, and direction perpendicular to their plane.

Oliver Heaviside and Josiah Willard Gibbs also felt that quaternion methods were too cumbersome, often requiring the scalar or vector part of a result to be extracted. Thus, about forty years after the quaternion product, the dot product and cross product were introduced — to heated opposition. Pivotal to (eventual) acceptance was the efficiency of the new approach, allowing Heaviside to reduce the equations of electromagnetism from Maxwell's original $20$ to the four commonly seen today.$^{[25]}$

Largely independent of this development, and largely unappreciated at the time, Hermann Grassmann created a geometric algebra not tied to dimension two or three, with the exterior product playing a central role. In $1853$ Augustin-Louis Cauchy, a contemporary of Grassmann, published a paper on algebraic keys which were used to solve equations and had the same multiplication properties as the cross product.$^{[26]}$$^{[27]}$ Clifford combined the algebras of Hamilton and Grassmann to produce Clifford algebra, where in the case of three-dimensional vectors the bivector produced from two vectors dualizes to a vector, thus reproducing the cross product.

The cross notation and the name "cross product" began with Gibbs. Originally they appeared in privately published notes for his students in $1881$ as Elements of Vector Analysis. The utility for mechanics was noted by Aleksandr Kotelnikov. Gibbs's notation and the name "cross product" later reached a wide audience through Vector Analysis, a textbook by Edwin Bidwell Wilson, a former student. Wilson rearranged material from Gibbs's lectures, together with material from publications by Heaviside, Föpps, and Hamilton. He divided vector analysis into three parts:

First, that which concerns addition and the scalar and vector products of vectors. Second, that which concerns the differential and integral calculus in its relations to scalar and vector functions. Third, that which contains the theory of the linear vector function.

Two main kinds of vector multiplications were defined, and they were called as follows:

• The direct, scalar, or dot product of two vectors
• The skew, vector, or cross product of two vectors

Several kinds of triple products and products of more than three vectors were also examined. The above-mentioned triple product expansion was also included.