The community came into being during the age of discovery. European men arriving in India for trade and evangelism took local lovers and wives. The British were not the first Europeans on the scene. The Portuguese, who were to remain in India for a longer period, preceded them: their formal presence was ended only with the "liberation" of Goa in 1961.
The Portuguese gave rise to a mixed community whose influence lives on in today's Anglo-Indians through surnames such as D'Cruz, De Souza, and D'Rozario. The French also had a strong early presence in the subcontinent, and intermarried with local women, creating dynasties. As the British gained dominion in India, the mixed race groups originating from various European paternal sources eventually coalesced into an English-speaking Eurasian community. On the British side, there was strong Irish and Scottish influence. As numbers grew, concerns were aroused that the Anglo-Indian community could become politically and militarily powerful, and would eventually overthrow the British. Perhaps the fear pervading British officials came from a comparison with the events that had led to the loss of the American colonies. Indeed, Lord Cornwallis himself, who had earlier surrendered at Yorktown to rebellious American colonists, was twice Governor-General in India.
The eighteenth-century "mulatto" rebellions in the Caribbean against French and Spanish rule must also have been a cause for concern to those who saw potential unrest in India. The Anglo-Indians were therefore demilitarized, though periodically redrafted when needed in emergencies; only to be subsequently demilitarized again as threats receded. Apart from their use as convenient cannon fodder, Anglo-Indians saw their educational opportunities and land-owning rights restricted. The East India Company had thus sown the seeds of future dependency and impoverishment. British fears however were unfounded. The Anglo-Indians were ultra-loyalists, a classic case of a people who were more British than the British.
They proved it with their continuous assistance both during the Company Raj and the later Empire. In the moment of greatest crisis, the 1857 sepoy Mutiny, they effectively saved British India. They weren't Britain's only allies in the sub-continent in 1857, but without them the British could have been swept out of the country altogether. Later, in the years leading to Independence, the Anglo-Indians became the backbone of the reserve Auxiliary Force, a paramilitary group that suppressed internal civil unrest and Gandhian agitation. The British belatedly recognized Anglo-Indian loyalty after the Mutiny, granting preferred employment in various professions. Here too, however, Britain was acting in it's own interest, by using the community to secure the imperial framework.
The Anglo-Indians were encouraged to keep the subcontinent's infrastructure running, with the allocation of reserved places in such services as the Railways, Customs and Telecommunications. The community was distanced from the levers of true political power, serving in an intermediate position between the British and the Indians, a link between the rulers and the ruled.
Anglo-Indian Family Trees
More info about the Anglo-Indian Family Trees, as well as their links to British India can be found here.