No one is completely sure from whence came these tales. Though it seems certain they existed in one form or another prior to the 10th century. No single author or authors have been assigned to them, and while many of them appear to have been oral in origin, others appear to have been deliberately composed for print.
And while they have a decidedly "Oriental" feel to them, their origins seem to stem from Arabia in the west, China in the east, India in the south and Persia in the north.
No one has been able to assign a birthplace to the tales, and perhaps it would be clearly a diservice to them to do so!
As a rule, the framework of the tales remained intact, with Sharhazad/Sheherazade spinning her tales night after night to the bitter king Sharyar, in a teasing, provocative, and ultimately successful attempt to keep the king's executioner's blade comfortably distanced from her sweet, fragrant neck.
But all this aside, people read the tales. They very quickly adopted them into their cultural families, where they have become somewhat of a mainstay in Western literary culture.
Even people who are not avid readers have usually at least heard of the tales. There have been popular films and stageplays based on the Arabian Nights. Novels and short stories have used one or more of these works as jumping off points for their own story lines. The opulent and exotic atmosphere of the old Islamic and pre-Islamic world, where one can find the Jinn, sorcerers, beautiful princesses, bold and handsome princes, mermaids and mermen, flying horses, magical (and usually lost) ancient cities, flying carpets, and immeasurable hidden treasures, has been adopted, reworked and given back to us in countless ways. There's no reason to think they will not be with us still, for many years to come!