From the Wikipedia entry on "business casual":
Business casual is a popular dress code that emerged in white-collar workplaces in Western countries in the 1970s in response to the energy crisis of that decade. Government mandates to raise thermostat settings in office buildings led managers to authorize employees to dispense with ties and jackets that had been part of expected business attire. Many information technology businesses in Silicon Valley were early adopters of this style of dress.[citation needed]
In the United States, a plurality (43%) of non-self employed workers commonly wear casual business attire. Casual street wear is the next most common work attire (28%), closely followed by uniforms (19%). Only a minority (9%) of workers wear formal business attire. [1]
It has partially supplanted business informal wear (suits and neckties, sometimes called international standard business attire), which was previously the standard apparel for managers and professionals. Trousers complete the package; jeans are rarely acceptable in workplaces as part of business casual attire, but some Silicon Valley entrepreneurs such as Steve Jobs are known to wear jeans as part of the business casual look.[citation needed] In academic and research settings, however, jeans may be worn with a dress shirt. The second-from-the-top button may also be opened in addition to the very top button.
Business casual is sometimes equated with (or depending on perception, confused with) smart casual.
Caption: "Bill Gates in business casual attire".