Thousands of years ago under dark skies, the stars were a familiar part of people's lives. Since humans are good at seeing patterns, even in randomness, it's easy to imagine people finding patterns in the sky and using them as visual aids for their stories.
We don't know how the first constellations were chosen, only that they were part of Mesopotamian astronomy some five thousand years ago. Mesopotamia was located in what is now Iraq and Syria.
Constellations are human ideas, not physical groupings. The stars in the constellations are grouped only in our vision. We have no sense of the distance to a light source, so the stars all look as if they're projected onto a sphere surrounding the Earth. Yet Gemini's bright star Castor is 52 light years away from us, while its "twin" Pollux is 34 light years away. Most of Gemini's stars are much farther. A light year is the distance light travels in a year, about 5.9 trillion miles or 9.5 trillion km.
The Greeks adopted the Mesopotamian constellations and incorporated them into their culture and religion. Constellations represented tales of gods and monsters, heroes, and damsels in distress. The Romans took them over from the Greeks and we still use the Latin names.
Other cultures have their own constellations and star lore, but modern astronomy was built on these Mediterranean traditions.
Since the progression of visible star patterns changes in a regular way each year, the constellations can serve as a calendar and also a navigation aid. Those who studied them could learn when it was time for planting and harvesting, and when to hold religious observances.
Ptolemy (circa 90-168 AD) defined 48 constellations in his influential astronomical work the Almagest. All the constellations of the northern sky were included, but only part of the southern sky, because the stars around the south celestial pole couldn't be seen from the Mediterranean region. Eventually, exploration of the southern hemisphere made the southern sky more important to Europeans.
The southern constellations were not adopted from any traditional lore, but were invented by northern astronomers. For example, a number of them were devised by 18th century French astronomer Nicolas Louis de Lacaille. He spent a year observing in South Africa and compiled a star catalog incorporating new constellations which depicted instruments from the arts and sciences, such as Telescopium representing a telescope and Pictor representing an artist's easel.
The constellations, as defied by the International Astronomical Union (IAU), aren't just star patterns. Each of the 88 constellations has fixed boundaries and taken together, they cover the celestial sphere without overlap.
Each constellation has a Latin name with a three-letter abbreviation. For example, Ursa Minor is UMi. On star maps, you might see Ursa Minor's stars labeled with Greek letters. The pole star Polaris is Alpha Ursae Minoris, which means the Alpha of Ursa Minor. An alpha star tends to be the brightest in the constellation, but it isn't always.
The system of designating the stars by teir brightness using Greek letters was originated by Johann Bayer (1572-1625). He incorporated it into his star atlas, but modern astronomy generally identifies stars by catalog numbers.
I should mention that some recognizable star patterns aren't constellations. These are called asterisms and include the Big Dipper (the Plough, in England), the Square of Pegasus and the Summer Triangle. Asterisms are parts of one or more constellations.
When you look at the sky, think of the thousands of years of history behind the constellations, when they served as visual aids, memory aids, navigation aids, religious symbols and calendars. They are still mnemonics for learning the night sky and their stories are still popular.
Ian Ridpath's Star Tales, http://www.ianridpath.com/startales/contents.htm
Constellation Names and Abbreviations, http://www.skyandtelescope.com/howto/constellation_names.html