I think it's because of a combination of several things. First of all we love to watch other people fail ('Wipe Out') and enter other peoples lives ('Wife Swap'). Further more we like to get the idea that we are better than others or that we have a change to win a lot of money ('Are You Smarter Than a 5th Grader?').
And of course, reality TV is a cheap way to make money for a lot of networks. They don't have to pay for a set, actors and they only need a small crew. And since we all love watching reality TV the networks will earn more money than they spent.