I don’t know who started it, but at some point in the web’s relatively short history, we decided that paragraphs displayed on web pages should be “typeset” in a manner similar to what we see by default in a Microsoft Word document: an empty line after a paragraph, and no indent for each paragraph.
Somehow it was unanimously settled upon that the traditional manner of typesetting paragraphs — with indents and no spaces between paragraphs — is not as readable on a computer screen. In fact, the default styles applied by a browser on paragraph elements encourages the no-indent method.
Look everywhere on the web, and you’ll have a hard time finding a website that lays out its content using traditional paragraph structure with no spaces and indents. Personally, I think Clark makes a valid point in the comment on Jason’s blog. First (in relation to print, although it could happen online too), there is a very real possibility that a single paragraph overflowing to a second page could look like two separate paragraphs. And second, due to the scan-everything nature of hurried readers, which I think we unnecessarily encourage, the gap between paragraphs may very well invite less actual reading.