The good thing about Lugnet was that it was one place where people from different themes all came. Unfortunately the functionality was really limited, and the administration was in great flux - the original founders aren't active these days, for a while it was kind of run by committee, then Renee took it over, but by then other communities had spun off. As other communities, such as this one, were created, there was hue and cry by some that we were fracturing the community, but others saw that a variety of forums led to greater creativity and development of the hobby.
I also wasn't one of the founding admins, and Tony or Ben could tell you much more, but CC grew out of a discussion about Castle World (no, not that one, the site by the same name that came before). CW was a community story site, but it was run by one person who let it flounder and didn't update it. Others volunteered to take over the administration, but the owner didn't want to give it up. So those involved, and I think this happened at a meeting at BrickFest, decided to start their own site (this one). Originally the idea was to focus more on people writing castle stories illustrated by LEGO, but it quickly expanded to cover all aspects of the LEGO Castle theme. A lot of us continued to post both here and in the castle section of Lugnet in the early days, but got a lot more response and discussion here, so eventually we stopped posting on lugnet. Over the next couple of years other specialty community sites grew up for LEGO Space, LEGO mecha etc.
As to the complaints about fracturing the community, after this site had been up a year Tony did some statistics and showed that there were many more posts and different people posting at CC than there had been in the previous year when discussion was centered at Lugnet. (It's not really true that Lugnet was ever the "only place" that people posted - in particular the German community 1000Steine was always strong, and FBTB was a very strong site devoted to the Star Wars theme before Classic-Castle ever came along. Plus there were two huge communities devoted to Bionicle, which was a shunned topic on Lugnet, which tended to have older members.)