How the Yorkshire Terrier developed is not recorded in any single document. The breed likely came from crosses between several terrier types that were common in the north of England during the 19th century, including the Waterside Terrier, the Skye Terrier, the Maltese, the Paisley Terrier, the Clydesdale Terrier, the Welsh Terrier, and the Old English Black and Tan Terrier.
In 1870, at a meeting of the English Kennel Club, the breed was officially named "Yorkshire Terrier" — named after the county where the best specimens were being produced. It has grown more popular with every decade since.
Here is the thing people tend to forget: these dogs were not bred for looks. They were bred to work. The mines of Yorkshire were crawling with rats, and the miners needed small, fierce dogs that could get into tight spaces and do a job. A Yorkie that could not kill a rat was no use to anyone. That instinct is still in every Yorkie puppy today, buried under the silky coat and the cute face. Respect it.
Sources: modern breed histories collated and cross-checked against the original yorkiesa.com article. The AKC recognised the breed in 1885.